Company Law

CAN A SHAREHOLDER BE REMOVED FROM A COMPANY?

WHO IS A SHAREHOLDER?

A Shareholder is a member of a company who has an equity stake in a company and has their name entered in the Register of members. Shares are the interest in a company’s share capital owned by a member who is entitled to share in the capital or income of the company.[1]

The amount of shares held by a shareholder determines his voting rights in the company as well as their level of control over the company.

HOW TO BE A SHAREHOLDER IN A COMPANY?

To become a shareholder in a company, one needs to either subscribe to the memorandum and articles of association or purchase shares of the company during a public offer of shares by the company [2]

SHAREHOLDER AGREEMENT?

A Shareholder(s) agreement is an agreement between two or more shareholders and a company, wherein the proposed shareholders agree on rights and liabilities, rules and regulations or code of ethics that would guide their obligations to the company.

A Shareholders agreement can include the operations of shareholders of company, it works hand in hand with the company code of practice and in most cases where there is conflict between the company code of practice and shareholders agreement the shareholder(s) agreement takes precedent.

A shareholder(s) agreement encourages transparency and efficiency in running a company’s affairs, it can state procedure for any event involving the transfer, sales, designation, or allotment of shares of a company. A shareholder(s) agreement aids settlement of disputes, it establishes the rights, powers and restrictions of shareholders with the company.

CAN A COMPANY REMOVE A SHAREHOLDER?

A company can remove a shareholder whose name is already in its Register of a company either voluntarily or involuntarily.

VOLUNTARY REMOVAL.

A Voluntary removal occurs when a shareholder willingly request that their name be removed from a company’s register of members. A voluntary removal is easy as there are no hurdles or investigations into same. The intending shareholder only needs to indicate his interest in being removed from the company.

Upon the application by the shareholder, the company must inform the Board of Directors who would approve the removal and inform the relevant authorities of the removal of same shareholder.

INVOLUNTARY REMOVAL

An involuntary removal of a company shareholder(s) can only occur where the shareholder has breached any of the company codes of conduct which must be of a grave conduct like fraud or a clear breach of the shareholders agreement.

A shareholder agreement just like all forms of written contract can contain terms that states consequences of a breach of the agreement. Where a shareholder is in breach of the shareholder(s) agreement, the company can exercise its right to remove that shareholder in line with what is provided for in the shareholders agreement.

Where there is no shareholder agreement, a shareholder can be removed by the company through a majority of the votes cast by members. To remove a shareholder without a shareholder agreement, the breach committed must be one of a grievous nature.

In case of involuntary removal there must be a company resolution passed to that effect and it must be authorized by the board of directors, before informing the relevant authorities.

CAN A SHAREHOLDER BE REMOVED BY ANOTHER SHAREHOLDER?

A shareholder can make an application for the remove of another shareholder, whereby a breach of the terms of a shareholder agreement has caused him damage.

CAN A MAJORITY SHAREHOLDER BE REMOVED?

A majority shareholder cannot be easily removed from a company except on acts that amounts to fraud. Where a majority shareholder breaches a term of the shareholder agreement, it must be a clear breach and he can only be removed by a majority vote of members cast at a meeting.

IS THERE A PROVISION IN CAMA 2020 FOR THE REMOVAL OF A SHAREHOLDER?

There is no clear provision in the Companies and Allied Matters Act, 2020 for the removal of a shareholder. In such case, recourse is made to the shareholders agreement and what is contained therein.

In cases where there is no provision for the removal of a shareholder in the shareholder agreement, depending on the type of breach, the company or injured shareholder can make an application for the shareholder to be removed and a vote can be cast.


[1] Section 836 of the Companies and Allied Matters Act, 2020

[2] Section 149 of the Companies and Allied Matters Act, 2020