The answer is usually no, but there are vital exceptions.
Shareholders have an ownership interest in the company whose stock they own, and companies can't generally take away that ownership. However, there are a few situations in which shareholders must sell their stock even if they would prefer to hold onto their shares. The two most common are when a company gets acquired and when it has an agreement among shareholders calling for forced sales.
The takeover situation
When one company chooses to buy out another in a stock-based acquisition, the acquirer generally seeks to gain 100% ownership of the target corporation. Corporate law typically allows the acquirer to gain full ownership of the target even if shareholders who in total own a minority interest in the target company oppose the acquisition. The required vote favoring the merger can vary depending on what's stated in the company's articles of incorporation. Some companies require a simple majority, while others require supermajorities of anywhere from two-thirds to 90% of outstanding shares.
When this occurs, the acquiring company pays objecting minority shareholders the same amount of cash, shares of the acquiring company, or a combination of both that those who favor the acquisition receive. As long as that compensation is deemed to be fair value for the stock, the recourse for the objecting minority shareholders is limited.
Shareholders' agreements
Shareholders' agreements are relatively rare in companies whose stock is publicly traded, but they are prevalent in privately owned companies. That's because minority shareholders can create substantial problems in a small-company context, especially when they seek to sell or transfer their shares to third-party buyers.
To protect against potentially problematic situations, a shareholders' agreement can specify certain conditions under which one shareholder must sell shares to fellow shareholders or back to the company. For instance, some companies give the company the right of first refusal to buy back shares that pass to an heir after the death of a shareholder. Other agreements can force a sale based on other conditions, such as a merger offer or a change of control among corporate leadership.
The agreement will often set the amount of compensation that the selling shareholders will receive for their shares. In some cases, the payment the selling shareholders will get won't necessarily reflect the current fair value of the shares, but they will reflect a formula that all shareholders will have agreed upon when they initially signed the agreement.
Forced sales among shareholders aren't all that common, and in most cases, shareholders are happy to sell shares in situations involving acquisitions. Nevertheless, knowing that a forced sale is possible is important in planning your long-term investing strategy. Choosing the right broker is important, too: Click here to visit our broker center and compare features and fees.
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FAQs
The answer is usually no, but there are vital exceptions. Shareholders have an ownership interest in the company whose stock they own, and companies can't generally take away that ownership.
Can a company force you to sell your stock? ›
In some instances, the majority shareholders may be compelled to sell their shares to the minority shareholder depending on the nature of the infraction and dynamics of the business. Note that with all of these options, a court is not bound to require minority stockholders to sell the stock back to the corporation.
Can a company be forced to sell? ›
A forced sale is the causing by one owner in a company to force the sale of the company by the other owner or owners or to the other owner or owners. A forced sale typically occurs upon the triggering of a forced sale provision within a shareholders agreement (corporation) or an operating agreement (LLC).
Are shareholders forced to sell when a company goes private? ›
If you own shares in a public company that goes private, you must sell your shares at the acquisition price that's been agreed to by the parties.
Can my business partner force me to sell my shares? ›
California law allows an individual to sell his or her interest in a partnership without your consent. However, it may be possible to override state law by creating a custom partnership agreement.
How do I force a shareholder to remove? ›
Without an agreement or a violation of it, you'll need at least a 75 percent majority to remove a shareholder, and said shareholder must have less than a 25 percent majority. The removal is accomplished through votes, and the shareholder is then compensated upon elimination, according to Masterson.
Can a company take away your stocks? ›
If your employer promises you stock, options, or other equity as part of you compensation, those items are wages. And when they vest, your employer cannot take them away from you without compensation.
What is a forced sale called? ›
A forced sale is a legal process (often called a partition lawsuit) by which the co-owner of a property can accomplished a court-ordered sale of the jointly owned property. The sale occurs under court supervision, ending in division of the property or sale proceeds.
Can my shares be taken away? ›
It is, of course, not possible to simply 'delete' shares from a company. As such, removal of a shareholder requires a transfer of the shares they hold.
Can shareholders refuse to sell their shares? ›
A Shareholder cannot generally be forced to sell shares in a company unless you have either agreed to a process resulting in that outcome, or the court orders that outcome.
Corporate Approval Requirements
An asset sale ordinarily requires the approval of a majority of the selling corporation's shareholders. A sale of stock, however, requires the approval of all of the corporation's shareholders if the buyer wants to own 100 percent of the business.
Can a company refuse to sell shares to someone? ›
Shareholders in corporations generally have the right to transfer their shares to whomever they please.
What happens if a shareholder refuses to sell? ›
Absent breach of a contract or the law, a shareholder can't typically force another shareholder to sell. But a shareholder can seek to enforce the terms of a buy-sell agreement, a shareholder agreement, or another valid contract.
What if a shareholder refuses to sell shares? ›
If your shareholder refuses to sell despite having the right, your company can use a power of attorney. Directors can enforce a sale, following specific powers outlined in the shareholders agreement or ESOP rules.
Can a 51% owner fire a 49% owner? ›
No owner can be fired or demoted without good cause. Outlining the responsibilities of both parties. The majority can't sell the business unless it's to the minority shareholder.
