How to remove shareholder from company

You must tell us when you change a shareholder's personal information, add or remove them from a share allocation, or increase or decrease their shareholding. These changes must be recorded on your own share register, and included in your next company annual return. Some of these details can also be updated online at any time.

Once you've registered a shareholder with us, you can make changes to some of their details online. These changes include:

• updating a shareholder's address
• adding a shareholder to a share allocation
• changing the number of shares they hold in 1 or more share allocations, and
• removing a shareholder from a share allocation.

You can't change a shareholder's name online. To do this you must first remove the person or organisation from your company's online service account, and re-register them as a shareholder.

To update a shareholder's details you must have:

• a RealMe® login
• an online services account with the Companies Register
• authority to act for your company

RealMe logins and setting up your online services account

Confirming your authority to manage information

To update a shareholder's address, log in to your online services account, enter a company name, company number or New Zealand Business Number (NZBN) and follow these steps.

1. Select the Shareholding tab.
2. Select the Update details button, and then select Continue on the Acknowledgement screen.
3. Select which type of shareholder you are searching for from the drop-down menu — individual, registered NZ company or other legal entity.
4. Select the shareholder whose details have changed, and select Edit shareholder.
5. Select the Change button next to Residential Address.
6. Change the shareholder's address and select Continue.

To add a shareholder to a share allocation, log in to your online services account account, enter a company name, company number or New Zealand Business Number (NZBN) and follow these steps.

1. Select Shareholdings.
2. Select the Update details button, and then select Continue on the Acknowledgement screen.
3. Select the share allocation to which the shareholder is to be added.
4. Select the shareholder's name from the drop-down menu.
5. In the Number of shares field, add the number of shares allocated to the new shareholder.
6. Increase or decrease the number of shares allocated to other shareholders within the allocation to ensure the total number of shares allocated matches the total number of shares available.
7. Select Review and Submit.

To increase or decrease the number of shares held by a shareholder in a share allocation, log in to your online services account, enter a company name, company number or New Zealand Business Number (NZBN) and follow these steps.

1. Select Shareholdings.
2. Select the Update details button, and then select Continue on the Acknowledgement screen.
3. Select which share allocation you want to change.
4. Select the shareholder's name from the drop-down menu.
5. In the Number of shares field, increase or decrease the number of shares allocated to the shareholder.
6. Increase or decrease the number of shares allocated to other shareholders within the allocation to ensure the total number of shares allocated matches the total number of shares available.
7. Select Review and Submit.

To remove a shareholder from a share allocation, log in to your online services account, enter a company name, company number or New Zealand Business Number (NZBN) and follow these steps.

1. Select the Shareholding tab.
2. Select the Update details button, and then select Continue on the Acknowledgement screen.
3. Find the share allocation to which the shareholder belongs.
4. From the Select shareholder drop-down menu, select the shareholder to be removed.
5. Select the 'x' icon beside the shareholder's name and select Continue.
6. Select Review and Submit.

When you remove a shareholder, you must reallocate their shares to ensure all allocations in which they've been a shareholder stay in balance. One way to do this is to reallocate the shares to other shareholders within the allocation.

If you remove a shareholder by mistake

If you remove a shareholder by mistake, you won't be able to undo this change instantly. Instead:

• select Submit to complete the removal of the shareholder, and
• select Undo removal to undo the change and reinstate the shareholder.

In most SMEs, the directors and shareholders are the same people. What happens to shareholders if one director leaves or ceases to play their part in running the business? Can you force the departing director to sell their shares?

How do you remove a director who is also a shareholder?

Generally, a majority of shareholders can remove a company director by passing an ordinary resolution after giving special notice. This is straightforward, but care should be taken to check the articles of association of the company and the shareholder agreement, which may include a contractual right to be on the board.

You should also consider whether the director is an employee. If this is the case, their employment will also need to be terminated and a director who has been dismissed may have a claim for unfair dismissal if they have been employed for over 2 years. The director will however continue to own the shares and be entitled to their portion of any dividends declared.

Potential options available in removing a shareholder

There is no automatic right that allows one party to force another party to sell their shares. However, there are possible routes to gaining the outcome you desire, (but the appropriate care needs to be taken in each case!)

1) Review and check the articles of association of the company and any Shareholders’ agreement

Your first port of call should be to review the articles of association and any shareholders’ agreement,  to see whether there are any ‘leaver provisions’ which enables the company or the remaining shareholders’ to back the shares of the departing director either at fair value or issue price. These clauses are sometimes referred to as ‘good’ and ‘bad’ leaver provisions.

If there are no leaver provisions, then you should check to see whether there is a ‘drag along’ clause which would enable the majority of the shareholders’ to force the sale of the minority shareholder in the event of a buyout of the company.

Well-drafted articles of association can be a valuable asset when needing to remove a difficult minority shareholder and you would be well advised to put these in place sooner rather than later.

2) Alter the articles of association

If there are no leaver provisions in the articles of association and or shareholders’ agreement, then consideration can be given (if the remaining shareholders’ hold 75% of the shares in the company) to update the articles of association to include the leaver provisions referred to at point 1 above. However, care should be taken that any alteration would not amount to an oppression on the minority and no alteration should be unjust, as the company could receive an unwanted unfair prejudice claim from the minority shareholder.

3) Do not pay dividends

One option could be to increase the salary of the remaining directors and reducing the sums paid by way of dividends. This may not be tax efficient or a long term solution, but may be preferable to paying dividends to a shareholder who is no longer involved in running the company (unless they are willing to sign a dividend waiver).

4) Negotiation

You could negotiate with the departing director with a view to reaching an agreement for the purchase of the shares. If things have turned sour, then it would be advisable to seek a valuation of the company, so you both have an idea of what ‘fair value’ would be for them.

5) Wind up the Company

As a last resort and if the remaining shareholders’ hold 75% of the shares, then you can consider the nuclear option of winding up the company. If a company which is solvent is wound up through a members voluntary liquidation, the company’s assets can be transferred into the name of a new company, which would not issue shares to the departing shareholder. Although this would be a lengthy procedure, it will be effective if there is no other option.

To avoid having a non-participating shareholder reaping the rewards of the remaining shareholders’ hard work, companies should pre-empt this situation and put in place suitably drafted articles of association and a shareholders’ agreement. If you would like to discuss issues that have arisen in your company, please do not hesitate to contact us.

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