How to Fire a Business Partner Who Owns 51% of the Company (2023)

(Video) 51/49 Business Partnerships | Who Gets the Majority Stake of Equity?

By Chron Contributor Updated April 13, 2021


A partnership is a risky business endeavor because partners can fail to meet their obligations to the organization, which can cause relationships to sour. Someone with 51 percent ownership of company assets is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business. The rights of a 49 percent shareholder include firing a majority partner through litigation. Another option to terminate a business partnership with a majority partner is to negotiate a buyout. Business owners should understand the rules involved in terminating a business partnership to protect their business interests.

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Partner Buyout 101

A primary way to terminate a business arrangement with a majority partner is to negotiate a buyout of the partner’s business interest. According to Marshall Jones, the easiest way to negotiate a buyout is to have a properly written buy-sell agreement. The partners of a business should create the buy-sell agreement before officially starting the business, but partners may establish the agreement anytime before the buyout occurs. A buy-sell agreement is a written contract that defines the terms of buying out a business partner and taking over his ownership interest. The agreement should include information regarding what is considered a fair price for buying out the partner.

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Buy-Sell Agreement Basics

Creating a buy-sell agreement before officially starting the business is challenging because it is difficult to predict the future value of the business. Although determining the value is difficult, agreeing upon a buyout price is essential to a buy-sell agreement. Some common ways to determine a price include agreeing on a fixed price and including it in the agreement, basing the price on the book value of the company’s assets or basing the price on the past profits of the business. The buyout agreement should include the names of individuals possessing the authority to buy out a partner and the conditions that can trigger a buyout.

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Lawsuits as a Solution

Firing a majority partner without a buy-sell agreement may require you to file a lawsuit. A general partnership agreement should include the business responsibilities of the partners. According to FindLaw, if the majority partner is not fulfilling his duties according to the agreement, you can file a lawsuit seeking to remove the majority partner from the business. Some common reasons to file a lawsuit against a partner include a breach of contract, breach of fiduciary duty and conflict of interest. The partner filing the lawsuit bears the burden of proving the majority partner did not perform in the best interest of the business.

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Business Dissolution Facts

If you fail to buy out the majority partner or remove the partner through litigation, you can attempt to dissolve the business by selling the assets and dividing the profits. The courts can assist you in dissolving your business if the partner refuses the buyout. When the courts force the dissolution of a business, the assets of the business are sold and all liabilities are paid. The money that remains is split between you and your business partner. A business attorney can help you seek a resolution from the courts and provide protection from any unscrupulous activity by your partner.

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Can a 51% shareholder be fired? ›

Create a Business Partnership Contract

The most important thing any business needs, whether it's a 50/50 or 51/49 agreement is a written, legally binding contract that limits the power of either party. Clauses can include: Creating a pay or profit-sharing arrangement. No owner can be fired or demoted without good cause.

What rights does a 51 shareholder have? ›

A minority shareholder is a shareholder who holds 49% of a company's voting shares or less. As a result, a minority owner does not have control over the company. In contrast, majority shareholders control 51% of the vote or more, giving them decision-making power over how the business is run.

How do I get out of a 50/50 business partner? ›

You'll have to file a dissolution of partnership form in the state your company is based in to end the partnership and make it public formally. Doing this makes it evident that you are no longer in the partnership or held liable for the costs of its debts. Overall, this is a solid protective measure.

Can a minority partner be fired? ›

Employees who are also minority owners of the business can be terminated from employment in the business - just like any at-will employee - at any time for any reason. The problem is that the termination may devalue the interest in the business.

How do I force my partner out of business? ›

Many times, you can only push them out if:
  1. The operating or partnership agreement says you can under specific circumstances,
  2. The business partner is engaging in illegal activity concerning the business,
  3. The majority interest holders in the company vote to remove the partner, or.
  4. The partners dissolve the business.

How do you force a shareholder out? ›

How Can I Remove a Shareholder From My Company?
  1. Share Transfer. ...
  2. The Death of a Shareholder. ...
  3. Shareholder Disputes. ...
  4. Minority Shares. ...
  5. The Register of Members. ...
  6. Notifying Companies House.

What happens if you own 51% of a company? ›

Someone with 51 percent ownership of company assets is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business. The rights of a 49 percent shareholder include firing a majority partner through litigation.

What can a 51% shareholder do? ›

Majority shareholders have the benefit of voting and election privileges. Again, it means that they have a say in the directions the company decides to take. Majority shareholders are consistently updated about how the company is performing, and if they are unhappy, they can request an election for new board members.

How do you remove minority shareholders? ›

Removing a minority shareholder will be simplest if you have a well-drafted shareholder's agreement. Such an agreement will usually stipulate that the majority shareholder can buy out the minority at a predetermined price, or at a price determined by a mechanism specified in the agreement.

Can my business partner withdraw funds without my consent? ›

A business partner cannot withdraw the company's funds for personal use. It is called embezzlement when a business partner withdraws funds for personal use.

What happens if one partner wants to leave the partnership? ›

When one partner wants to leave the partnership, the partnership generally dissolves. Dissolution means the partners must fulfill any remaining business obligations, pay off all debts, and divide any assets and profits among themselves. Your partners may not want to dissolve the partnership due to your departure.

Can I be forced to sell my shares in a company? ›

Yes. Most companies that raise investment (on Crowdcube or elsewhere) include a “drag along” procedure in their articles of association. The procedure is designed to ensure that minority shareholders cannot block an exit by the majority.

Can you remove a majority shareholder? ›

Removing a majority shareholder, or one who owns over half of the company's shares, for violating conduct rules is easier than removing them on other grounds. If a majority shareholder breaks a rule that is specifically outlined in the agreement, you shouldn't have any trouble removing them from the company.

Can a partner in a company be fired? ›

A partner is an owner and is not an employee you can simply fire. Instead, you may need to try to resolve any conflicts you have to improve your partnership relationship. This may require dispute resolution methods such as mediation, arbitration, or even litigation.

How do I get rid of a toxic business partner? ›

To deal with a bad business partner, speak to the partner about your concerns. If talking doesn't work, you may close the doors by dissolving the business, selling your share to the partner or another person, buyout the partner, or suing the partner.

How do you deal with a selfish business partner? ›

Here are a few tips for engaging in productive dialogue with a selfish company partner:
  1. Treat the conversation not as a casual chat but as a business transaction.
  2. Remove emotion from the equation; focus on what is good for the business.
  3. Suggestions are based on dialogue and not one-sided.
  4. Examine different perspectives.

Can you remove a 50% shareholder? ›

Neither director can remove the other, as that requires a vote from 51% of the shareholders. Neither can overrule the other, as that requires an 80% vote from the shareholders.

Can a shareholder be removed without consent? ›

Removing a shareholder from a company

The answer to this is that there is no automatic right for majority shareholders to force a minority shareholder to sell his/her shares. However, if majority shareholder wants to remove a minority shareholder, there are a range of options available.

Can a shareholder walk away from a company? ›

Generally, a shareholder may be able to exit a company by way of a share sale or share buy-back. A share sale is a process whereby the exiting shareholder's shares are sold to either: the remaining shareholders in the company; the company; or.

Does my business partner have to buy me out? ›

Your partners generally cannot refuse to buy you out if you had the foresight to include a buy-sell or buyout clause in your partnership agreement. These clauses and provisions set terms in advance regarding how the company will proceed if one partner wants out.

Do you need 51% to control a company? ›

Founders are often focused on maintaining at least 51% ownership of their companies. With 51%, they will be able to control the Company, and their destiny. At least that's what they thought. In reality, the 51% control premium is often contracted away in the world of preferred stock venture financings.

Should I sell 51% of my company? ›

Selling 51% of your company can bring big rewards for businesses. With recapitalization as the strategy to sell part of your business, business owners can: Minimize their business risks and liabilities. Acquire new capital through a cash pay out.

What is unfair prejudice against majority shareholder? ›

A shareholder can make a claim for unfair prejudice if they believe that majority shareholders have acted unfairly in regards to how the business is run. This alleged unfair activity must have resulted in prejudice to the claimant's position as a shareholder.

What is unfair prejudice to minority shareholder? ›

What is unfair prejudice? Unfair prejudice typically arises where 1 or more, minority shareholders find their interests prejudiced by a majority shareholder, commonly where the majority shareholders also have control at board level.

What percentage of shareholders is needed to pass resolution? ›

A resolution of members (or a class of members) of a company passed by: On a show of hands at a general meeting, a majority of not less than 75% if it is passed by not less than 75% of the votes cast by those entitled to vote (section 283(4), Companies Act 2006 (CA 2006)).

Can a minority shareholder be forced out? ›

There are a number of ways a majority shareholder may remove a minority shareholder, and doing so is not necessarily wrong. For example, the majority shareholder may buy out the minority shareholder's shares, either by following the terms of the shareholder agreement or by negotiating with the shareholder.

What is a forced buyout? ›

Buy-Sell agreements or “forced buyouts” are one way for the majority to force out a minority. This allows a majority to force a minority to sell their shares often in the context of a company-wide buyout.

Is a 50% shareholder a minority shareholder? ›

What is a minority shareholder? Quite simply, a minority shareholder is one who owns less than 50% of a company.

What are the three stages in the ending of a partnership? ›

These three stages are: dissolution. winding up. termination.

Can I just walk away from a partnership? ›

You can walk away, lose your stake, and risk future liability. There are times when this is a viable option. If the business is small, you won't be walking away from much value and if the rent is on a month-to-month basis, and if there isn't much other debt, you could walk away and take your chances.

Can you sue a business partner for deception? ›

You can sue your business partner if the partner stole, sabotaged the business, took money without permission, abandoned, embezzled, committed fraud, or breached a fiduciary duty.

How much do I ask for a buyout on a business partner? ›

The formula takes the appraised value of the business and multiplies that number by the percentage of ownership your partner has in the company. Ex: Partner owns 45%, and the company is appraised at $1 million. That would look like: 1,000,000 x . 45 = 450,000.

How do you dissolve a business partnership without an agreement? ›

Dissolving a partnership without an agreement

For business partnerships that have no Partnership Agreement in place, the rules of the Partnership Act 1890 will be in effect. This means that the partnership is automatically dissolved if one of the partners gives notice that they want to leave.

Are partnerships difficult to terminate? ›

Ending a partnership can feel like ending a marriage – and become just as complicated and contentious. It's always preferable to have a partnership agreement in place that details an exit strategy. But when one doesn't exist, a skilled business advisor can help guide you through the process.

Can you force someone out of a partnership? ›

In most cases, a partner can force out another partner only for violating the partnership agreement or state or federal laws. If you didn't violate the agreement or act illegally, you may nonetheless be forced out of the partnership if a court determines that the partnership should be dissolved.

What is the minimum percentage of share to control a company? ›

A controlling interest is, by definition, at least 50% of the outstanding shares of a given company plus one.

How do you remove an owner from a corporation? ›

In a typical situation, the removal is based by a majority vote of the shareholders. However, the bylaws may require some different type of proportion, such as 75 percent of the vote, two-thirds, super-majority or a unanimous vote. In some situations, the officer is both an officer and a shareholder.

Can a company be forced to buy back shares? ›

The company uses its post-tax distributable reserves to pay for purchase of it's own shares. If the company does not have the cash available to pay for the shares the company cannot buyback the shares. A way around this is often to agree a buy back of shares in instalments.

Can a 51% shareholder be ousted? ›

Without an agreement or a violation of it, you'll need at least 75% majority to remove a shareholder, and said shareholder must have less than a 25% majority. The removal is accomplished through votes, and the shareholder is then compensated upon elimination, according to Masterson.

Can a majority shareholder make all decisions? ›

But, the shareholders of a company are the ones with the ultimate power – depending on what percentage of the shares are under their control. According to s282 of the Companies Act 2006 an Ordinary Resolution can be passed by a simple majority of a company's shareholders; 51% or more.

How do you fire a partner in a company? ›

Without a valid partnership agreement granting termination rights to business partners, the only legal means to forcefully remove partners from the business is through litigation in civil court.

What is considered a partnership termination? ›

So, a partnership may now only terminate by cessation of partnership activities and liquidation, or when the partnership's business activities no longer continue in partnership form.

What happens when you own 51 of shares in a company? ›

Someone with 51 percent ownership of company assets is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business. The rights of a 49 percent shareholder include firing a majority partner through litigation.

What happens when you own 51% of a company? ›

Thus if a person owns fifty shares, that person has fifty votes, if the person has sixty shares, that person has sixty votes. In California, majority vote controls in votes of shareholders. Thus, if a shareholder has fifty one percent of the stock, that person effectively controls the corporation.

Does a 50% shareholder have control? ›

Shareholder control

But in a limited company, having 50% of the shares actually means you have no control at all and neither does the holder of the other 50% of the shares.

Can you forcefully remove a shareholder? ›

An involuntary removal can only occur if your shareholders agreement describes the process for such a removal. Otherwise, you cannot force out a shareholder until they have violated the corporate statute. In most cases, this would mean that the shareholder has committed fraud.

How do you legally remove a shareholder? ›

Unless there are specific rights to do so in your company's shareholders agreement or constitution, you cannot simply take a shareholder's shares from them. Instead, you can offer to purchase their shares. If you come to an agreement on the price, you can buy the shareholder out of the company.

Who has the power to remove shareholders? ›

There is no rule of law that caters explicitly to the removal of a shareholder, and a shareholder may not be forced to sell or forego its shares. Unlike that of a director who deals with the running of the business, the nature of a shareholder is inherently linked to ownership and control.

When a company having 51% shares held by it is termed as a government company? ›

Government Company means Company any in which not less than 51% (fifty one per cent). of the paid-up share capital is held by- The Central Government, or Central Government and partly by one or more State Governments, .

Can an owner of a company be fired? ›

If a CEO has a contract in place, he or she may get fired at the end of that contract period, if the company has new owners or is moving in a new direction. The CEO, despite being the person who incorporated the company, often gets fired in times when the company is experiencing a slump in financial performance.

What's the minimum share someone needs to hold to control a company? ›

Understanding a Controlling Interest

A controlling interest is, by definition, at least 50% of the outstanding shares of a given company plus one.

How many shares do you need to be considered an owner? ›

What Is a Shareholder? A shareholder is a person, company, or institution that owns at least one share of a company's stock or in a mutual fund.

What powers does a 50% shareholder have? ›

A 50% shareholder who is “frozen out” of the company's finances may be treated as a minority shareholder and be able to force a buy-out, or obtain any of the other equitable remedies designed to protect minority shareholders.


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