Can Shareholders Close A Company?

Can shareholders close a company? Yes, there are three ways shareholders can close down a company if there is disagreement with directors: 

1. Changing the Board of Directors;
2. Forcing a general meeting of the company’s shareholders;
3. Just and equitable winding up.

For more information on your options for closing a business please visit our main How To Close A Limited Company page.

Why A Shareholder Might Want To Close A Company?

A shareholder might want to close a company because they:

• bought the company as a competitor to dominate the market;
• wish to retire from the business;
• are concerned the directors are causing the business to incur losses and they cannot easily be replaced;
• want to extract their financial interest tied up in the business.

Shareholders Can Close A Company With Agreement Of Directors

If the directors and shareholders are the same, shareholders can easily close a company. Using a DS01 form to strike off a company can enable shareholders to close the company.

Alternatively, they can pass a special resolution for voluntary liquidation when 75% or more of shareholders vote to wind up the company. This could be done with either a solvent or insolvent company for it to be placed into voluntary liquidation.

If voting is by a written resolution, it is passed if 75% of all shareholders vote to close down the company. When the voting is through a general meeting of the company it requires 75% or more of those shareholders attending the meeting to vote.

But what if they are not the same people? If the directors agree to close the company there would not be a problem. However, if not it is still possible but it can be a far more complicated process if directors refuse the shareholders’ request.

Why Might A Director Refuse To Close A Company?

A director might refuse to close a company at the request of shareholders because they may have built up a successful business and it is their livelihood.

If the company is closed down by the shareholders the director will made redundant and lose their job as an employee. They may be understandably unhappy. 

Changing The Board Of Directors To Close Down A Company

If the directors refuse to close the company one option is to change the Board of Directors by appointing additional directors. Once the shareholders have a majority of directors who will pass a Board Resolution to close down the company the procedure to convene a shareholder vote for a winding up resolution can be started.

Alternatively, if the Board of Directors is split evenly shareholders can remove one of the dissenting directors to obtain control of the Board. Shareholders can remove a director under Section 168 of the Companies Act 2006 by passing an ordinary resolution under Section 282 of the Companies Act 2006 (requiring 51% or more of voting shareholders). This process cannot be done by written resolution.

However, what happens if the director does not hold a General Meeting of shareholders so they can be removed?

Forcing A Meeting Of The Company’s Shareholders

If directors refuse to hold a General Meeting shareholders will need to requisition the Meeting under Section 303 of the Companies Act 2006. 

To force such a Meeting requires shareholders with 5% or more of voting rights to request it.

The meeting can pass the ordinary resolution to remove the director. 

Once the director has been removed and the shareholders have control of the Board they can pass the special resolution to wind up the company.

Just And Equitable Winding Up To Close A Company

If a company is owned 50/50 with shareholders who have fallen out it cannot usually be closed by the shareholders voluntarily. This is particularly a problem in the case of a two person company when the directors and shareholders are the same.

For the shareholders to close down the company will require a just and equitable winding up. One of the shareholders has to petition the court under Section 122(1)(g) of the Insolvency Act 1986 that the company be wound up on a just and equitable basis.

The Court will decide if it will close the company at the shareholder’s request. It is not obliged if another option is available to resolve the deadlock.