How Do You Remove a Member, Shareholder, Director, or Officer from Your Company?

A common question from many of our clients pertains to removing a member, shareholder, director, or officer from your company.

Man Getting FiredHow do you remove someone from your company?

The first question I always ask is whether the company has an operating agreement for an LLC, or by-laws for a corporation, because those are the controlling documents under which companies operate. Ideally the operating agreement of by-laws should have mechanisms for the removal of members. However, many companies do not have an operating agreement or bylaws. Unfortunately, they only have articles of incorporation for a corporation or articles of organization for an LLC and have never drafted by-laws or an operating agreement. Therefore, the default is the New Mexico statutes. Instead of waiting until there is a dispute between members, shareholders, directors, or officers, companies need to anticipate discourse and plan ahead by including these provisions in by-laws or an operating agreement early on.

Governing documents dictate the rights and responsibilities of each business owner and it documents the agreement in a written contract. Since these are legally enforceable contracts, it makes since to have an attorney draft governing documents that best meet your needs.

A good business plan explicitly addresses the governing documentation and the legal structure of the business itself.

From a business standpoint, a governing agreement is extremely important for small, closely held corporations in which the people involved may essentially wear four different hats: employee, shareholder, officer, and director.

I have seen many situations in which a company fires an employee, but the ex-employee is still a shareholder, director, and/or officer. Or, the company may try to remove a person’s stock ownership, but the person is still a director or an officer. There are ways to avoid these kinds of situations.

Albuquerque Business Law, P.C. specializes in setting up corporations and revamping existing corporations, whereby we look at all contingencies and include provisions for how clients can remove members/shareholders/directors/employees/officers.

Lawsuits will be very expensive to litigate; therefore, it is best to have the business documents prepared correctly ahead of time. You may spend more money up front in the beginning, but, in the long run, you will save yourself a lot of money and headaches. If you do not have the correct documents, it is better to make an appointment with ABL before a dispute does arise, or, if you anticipate a dispute, get the documents sorted out and revised immediately.

We have had the unique opportunity to examine a broad spectrum of businesses across several industries.  Nearly all failed or failing businesses are “making it up as they go along.” They have no business plan, never had a business plan, and simply rushed into a market space that looked favorable at the time.

Albuquerque Business Law, P.C. can help you avoid these situations by reviewing all your documents, modifying existing documents, or even preparing new ones.