Vote to split holding company from subsidiary

[StartupDreamer]

Hi,

My business currently has a holding company and two subsidiary companies, one of which is used for 90% of the work we undertake.

We have 3 shareholders and directors, each with an equal share in all 3 companies.

Would a majority shareholders vote (66%) be sufficient to split the main subsidiary from the holding company, and if so, would the majority also be able to agree who to sell to? (I.e to themselves, reducing the subsidiary from 3 shareholders to 2?)

Thanks,
James

 

[Scalloway]

We have 3 shareholders and directors, each with an equal share in all 3 companies

That is not a subsidiary. For the other two companies to be subsidiaries the main company need to own the shares, not the individual shareholders.

 

[StartupDreamer]

That is not a subsidiary. For the other two companies to be subsidiaries the main company need to own the shares, not the individual shareholders.

Sorry it does, it should have said the holding company has 3 shareholders with equal shares, not each company...

 

[Inva]

I don't think you can force the other person to sell their shares.

 

[Newchodge]

What you appear to want to do is to have a 66% vote to sell the subsidiary to the 2 people voting to sell the subsidiary to themselves? What price are you thinking of charging yourselves? In any event, given that you are planning to give away or sell the company's main asset I think you need a 75% vote, although I could be wrong.

 

[Inva]

You can't force a small shareholder out of their shares. Though it would be great to force the minority stakeholder out wouldn't it? I could really find some uses for use that kind of law.

But, you can't sell a company. What you can sell is your shares in the company.

Edit: Correction, in the case of holding companies, since the entire stake is held by the company the director may indeed sell the shares, but in this case it's a conflict of interest so they can't do it (or perhaps they can do it, then easily lose in court).

 

[Engage Legal]

Do your company articles or shareholders' agreement say anything about this?

If not, you might struggle.

 

[Mike Hutchinson]

This is a restructuring and is likely to have tax implications. If you are selling for cash rather than a share exchange (which would probably get an exemption) then there may be stamp duty to pay depending on the valuation of the shares. You should get some tax advice before starting this. There may also be restrictions on share transfers in the articles requiring shareholder approval to disapply which would need a 75% majority in favour (the selling of a major asset as mentioned above is another point requiring shareholder approval). It is not entirely true that you cannot require a minority shareholder to sell - it depends on the articles and any shareholder agreement. Tag along and drag along rights respectively allow or require minority shareholders to join in a sale.

 

[The Resolver]

Yes the two can make that decision on a 2-1 vote of the directors, but the holding company would be selling off its main asset on which the business relies in respect of which there can be consequences. . Quite apart from any restrictions in the Articles or Shareholders Agreement , eg that selling a major asset requires maybe 100% , it would be difficult without the agreement of the third shareholder for the other two to avoid exposing themselves to a breach of directors duty claim , as directors of the holding company exacerbated by aconflict of interest , as well as face a minority prejudice petition. If they want to do this they must negotiate the consent of the third shareholder.

Of course there may be good reasons to take this action, eg urgent financial need for which the two are prepared to invest in the subsidiary.