Removing Minority or Legacy Shareholders the Right Way

The best practice for dealing with minority shareholders is a well thought out buy-sell agreement which includes simple to follow and execute buy-out or redemption provisions.  But what if your small business (for example a multigenerational agribusiness or family farm) has legacy shareholders who are not subject to a buy-sell agreement?  Even worse, what if those shareholders are irrational, create conflict and/or are not contributing in a meaningful way to the business?  Most state corporate statutes (including Nebraska) contain a simple solution by allowing a squeeze-out maneuver through the creation of fractional shares (i.e. script) which in turn allows the corporation to simply cancel the minority shareholder’s shares in exchange for tendering cash equal to the fair value of their stock.  This can be a win-win for family and small businesses because it allows the business to move forward without having to deal with issues created by the presence of the minority shareholder and also provides a fair mechanism for valuing the shares of minority shareholders when their position is liquidated.  You should consult with an experienced attorney about the ins and outs of executing this maneuver if you want to remove a minority shareholder.  Often a simple letter from your counsel to the minority shareholder’s counsel is all that is needed to resolve your disputes with the minority shareholder.