YOU'RE FIRED! How to avoid dead lock when you remove a director?
Building up a successful company with your partner is similar to getting a marriage, often easy to getting together, difficult at the time of separation. When the time arrived, all you want is to minimize the damage to the business.
In this article, we will share some preparation works at the early stage to avoid dead lock when the relationship turns sour and reclaim the control of the company.
Retirement or rotation scheme
Although if you are the majority shareholder, you can remove the director by special resolution, this rough and direct arrangement might cause certain unrecoverable damage to the people being affected and also to the company.
There is a mandatory requirement for Hong Kong Company to hold Annual General Meeting (AGM) once per year. This would be a good practice to set out the retirement rules in the Articles of Association of the Company to retire and re-appoint the Directors every year during AGM, so that the Shareholders (Members) can bring up the idea for a Director to retire naturally, rather than to terminate the relationship at an undesirable moment.
Appoint yourself as Chairman of the Board
In case you are not the majority Shareholder (over 75% of shareholding), or the minority Shareholders also appoint themselves as Director; then appoint yourself as Chairman of the Board can give you the determine vote to control the Board during the critical time and avoid unfavorable decision against yourself; also, allow you to buy time allying with other shareholders to remove that director and win the battle.
Shareholder Separation Agreement
If you and your partner are the only two (2) Shareholders and Directors, other than nominate one as chairman, we also recommend you two to sign a shareholder separation agreement with detail in what circumstance, at what price (premium), whether or not to repurchase of shares out of the dividend of the company; if yes, under how many installation to buy out one another as a way of exit procedure, also the control of the company during the transitional period …etc. Of course, we suggest hiring a lawyer to draft the agreement that protects the interests of both the company that both partners.
Remember, the reason to prepare these arrangements in advance is to avoid the damage to the business operation of the company due to power struggle resulting lose-lose situation. If you need more assistance on handling director dispute, feel free to drop us an email at email@example.com to discuss.