Hemant Bhargava 14 January 2023

Termination of shares of an private limited company

Hi Club, I have an interesting question. I got associated with an ABC company around 2 years ago(Mar 2021) and allocated 2.5% of the shares when it was incorporated. I did not invest any money at that time. One of my partner invested 5cr in the company and no other partner invested. Later on, after a year, Mar(2022), I bought 0.5% shares by buying it from a person who was leaving the company. I paid 3L to him at that time. The partner who holds around 95% of the shares is threatening us now that he will terminate all the shares that I have and I will not have any shares left.

Can he terminate my shares considering that he invested and majority shareholder? Thank you.

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3 Replies

T. Kalaiselvan, Advocate (Advocate) 17 January 2023

Removal of a shareholder from a company is a very lengthy process. A company must enter into an agreement with the shareholders. The agreement must include the shareholder removal process, i.e. shareholders agreement shall have a procedure for removing a shareholder. Typically, removing a company shareholder requires a majority vote of other shareholders of the company.

He cannot terminate your shares if you have the share certificate for the hares you own.

You can drag him to court and also prosecute him as per law.

A shareholder’s agreement assures fair treatment of all shareholders and also ensures that every shareholder knows their power and responsibilities within the company.

kikam 17 January 2023

You can use the law to find out more whether he can terminate and withdraw from shareholders. You can also find a restaurant or a children's play area in cuphead io

Hemant Bhargava 24 January 2023

Thanks much for the reply. It makes complete sense to me. However, it seems there is another angle to it. Like if the promoter infuses more money and dilutes, the face value of the share becomes much lesser. Isn't it? In that case, my value of my 3% shares would decrease drastically. Did I get it right?

Also, I would value your opinion if you can spare some time on it to talk. Thank a lot again.