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? ›
The company that sold you the preferred stock can usually, but not always, force you to sell the shares back at a predetermined price. Companies might choose to call preferred stock if the interest rates they're paying are significantly higher than the going rate in the market.
Can a shareholder be forced to sell his shares? ›
A shareholder cannot typically force another shareholder to sell their shares unless there is a contractual obligation entitling them to do so. For example, if there is a provision enabling such a sale in the company's Articles of Association, Shareholder Agreement or another valid contract.
Can shareholders refuse to sell their shares? ›
You have the right to accept or reject the offer—as long as you know what the consequences are. Most people don't own enough shares to viably reject an offer, and therefore, won't have a big effect on how the company's management will react. In the end, you may even be forced to sell your shares.
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).
Can a private company force shareholders to sell? ›
If part of the terms of the contract requires that the shareholder sell their shares, then you can force a shareholder to sell shares. But doing so can be costly.
Can a company take your stocks away? ›
In California, it is against the law to fire an employee to prevent them from accruing or vesting wages, including stock options and other equity rights.
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.
Can you kick out a shareholder? ›
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.
Do shareholders have to agree to sell a company? ›
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.
(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a ...
What can a shareholder not do? ›
It's also important to note that shareholders aren't responsible for managing the company. That role is explicitly given to the board of directors, which then appoints executive officers to run the company's day-to-day business operations.
Do I have to sell my shares in a takeover? ›
Change in Ownership or Merger
Sometimes it may make sense to sell a stock if a company has been acquired or merges with another company. Many times the stock price can rise dramatically if it is acquired for a significant premium. As a result, investors may sell the stock after the merger.
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.
Can a shareholder abandon his shares? ›
The person may no longer want involvement and is looking for new challenges. If it's a publicly traded company, the shareholder can unload their shares on the stock exchange. If it's privately held, then hopefully the articles of incorporation or association contain a buy-sell provision.
Is a company ever forced to go public? ›
Key Takeaways. A forced IPO is the process whereby a private company is forced to become publicly traded. It occurs due to U.S. securities regulations prohibiting private companies from having more than 500 shareholders and $10 million in assets.
Do you have to sell your stock when you leave a company? ›
Type of Shares: If you own publicly traded shares, they are yours to keep or sell as you wish. Leaving a company doesn't affect your ownership of publicly traded shares. If you own private company shares (like in a startup), there might be restrictions on what you can do with them.
What happens if I don't accept a stock tender offer? ›
If you do not tender shares in the tender offer, those shares will be cashed out in connection with the merger and you should receive payment for those shares, generally within 7-10 business days after the merger.
Can a company buy back shares without permission? ›
Any share repurchase should be authorized and approved by a company's board of directors.
