In the Nigerian corporate landscape, the question of whether a shareholder can be removed from a company is both a legal and procedural matter. Shareholders are integral to a company’s ownership structure, and their rights and responsibilities are protected under Nigerian law, specifically the Companies and Allied Matters Act (CAMA) 2020. This article explores the circumstances under which a shareholder can be removed, the legal procedures involved, and the implications for companies in Nigeria.
Who Is a Shareholder?
A shareholder is an individual or entity that owns shares in a company. By holding shares, a shareholder becomes part-owner of the company and gains rights such as voting at general meetings, receiving dividends, and accessing company financials. However, these rights come with responsibilities, and under certain conditions, shareholders may lose their ownership or be removed from the company.
Grounds for Removing a Shareholder in Nigeria
The removal of a shareholder is not explicitly provided for under CAMA, but there are circumstances where this can occur indirectly. These include:
- Breach of Shareholder Agreements
If a shareholder violates the terms of a shareholder agreement, such as failing to meet financial commitments or acting against the company’s interests, they may be forced to sell their shares.
- Dispute Among Shareholders
Disputes leading to irreconcilable differences may necessitate the removal of a shareholder, often through a buyout arrangement or legal action.
- Insolvency or Bankruptcy
If a shareholder is declared insolvent or bankrupt, they may lose the ability to hold shares, as creditors may claim the shares to settle debts.
- Illegal or Unethical Conduct
A shareholder engaging in illegal or unethical behavior that jeopardizes the company’s reputation or compliance with regulations may face removal.
- Buyout or Transfer of Shares
Shareholders may be asked to transfer or sell their shares if the company restructures or introduces new investors.
Legal Procedures for Removing a Shareholder
While shareholders cannot be unilaterally removed, the following legal steps can lead to their exit from the company:
- Invoking a Buy-Sell Clause in the Shareholders’ Agreement
Many companies include a buy-sell clause in their shareholder agreements. This clause allows the company or other shareholders to buy out a shareholder under specific conditions, such as misconduct or an offer from an external buyer.
- Amending the Articles of Association
The Articles of Association may be amended to introduce provisions that facilitate the removal of a shareholder. This requires passing a special resolution with at least 75% shareholder approval.
- Court Intervention
In cases of deadlock or disputes, any shareholder or the company itself may apply to the Federal High Court for intervention. The court can order the compulsory acquisition of shares under equitable terms.
- Mandatory Share Sale Under CAMA
Section 142 of CAMA allows companies to acquire a shareholder’s shares if the company has the right to do so under its Articles of Association.
- Company Buyback of Shares
Under Section 184 of CAMA, a company may buy back its shares, effectively removing a shareholder, provided it complies with legal requirements and shareholder approvals.
Practical Steps for Removing a Shareholder
- Review the Shareholders’ Agreement
Check the shareholder agreement for clauses relating to disputes, misconduct, or buyouts.
- Call a General Meeting
Convene a general meeting to discuss and vote on the removal of the shareholder, if required.
- Seek Legal Advice
Engage a lawyer or corporate legal advisor to ensure compliance with CAMA and other relevant laws.
- Negotiate a Buyout
Negotiate the terms for the exiting shareholder, ensuring the valuation of their shares is fair and transparent.
- File Necessary Documentation with CAC
Update the company’s records with the Corporate Affairs Commission (CAC) to reflect the change in ownership.
Implications of Removing a Shareholder
For the Company:
May improve governance and resolve disputes.
Could affect investor confidence if not handled transparently.
For the Shareholder:
Loss of ownership rights and financial benefits.
Potential for litigation if removal is deemed unfair.
Alternatives to Removing a Shareholder
Before resorting to removal, consider alternative conflict-resolution mechanisms, such as mediation, arbitration, or renegotiation of terms. This approach can preserve relationships and reduce the risk of costly legal battles.
Conclusion
Removing a shareholder in Nigeria is a complex process that requires strict adherence to legal provisions and corporate agreements. Companies must ensure transparency, fairness, and compliance with CAMA and other relevant laws to avoid disputes and legal challenges. Whether due to misconduct, disputes, or restructuring, the removal of a shareholder should be handled professionally to protect the company’s interests and reputation.
For expert assistance in transfer or transmission of shares or updating company records with the CAC, contact CACregistration.com today.
Adebayo Oluwole is a seasoned chartered accountant and a member of Chartered Institute of Taxation of Nigeria with over twenty years of experience. His expertise cuts across accounting, auditing and taxation. He has helped hundreds of individuals translate their dreams into reality by offering them pre and post registration services. His focus is to help SMEs grow in the marketplace.