If I Resign as Director Of Company, Will I Lose my Shares or Equity?

Dec 19, 2022
By Peter Friedmann

You may have been instrumental in creating a company, which resulted in you receiving shares or equity in that company. As organizations grow, they experience changes that may encourage the original creators to decide to move on to different ventures. For any number of reasons, a director of a company may choose to resign from his or her position. And while being a director does not necessarily make one a shareholder in a company, for those directors that do hold shares, they have to consider what happens to their shares once they resign.

Below, we take a closer look at what being a shareholding director means for you if you decide to resign – such as what will happen to any shares or equity you have and what it means in terms of your shareholder termination agreement in Ohio.

I Have Shares in My Company but Want to Resign. What Will Happen to My Shares?

First and foremost, you will want to refer to the shareholder or equity agreement that originally granted you shares in the company. This agreement will lay out what steps, if any, you need to take in relation to your shares, and what happens to your shares upon separation.

Depending on the specifics of your agreement, you may be required to transfer shares or sell them once you resign from your position. Some agreements may specify that you can keep your shares after you resign. Some agreements may require that other shareholders have the right of first refusal before you can consider selling on the open market.

As with many types of employment contracts, a shareholder agreement will define what will happen to your shares upon separation from employment – whether you resign or are terminated.

Clauses that address your shares will be specific to your individual agreement.

If I Resign as Director of a Company, Will I Have an Interest in the Company’s Assets?

In terms of having a share in the assets once you resign, this will again depend on the shareholder agreement that you signed. Sometimes a shareholder agreement will include a clause that refers to a leaver event (i.e., a shareholder deciding to leave the company, being terminated, having an illness, etc.). The agreement can include both good and bad leaver events.

Good leaver events typically involve a situation where the shareholder stops providing services due to reasons that they have no control over such as retirement, transition, or redundancy.

Bad leaver events typically involve situations where the shareholder voluntarily or involuntarily decides to step back from the business through resignation, termination, or by a breach of their employment contract.

Depending on the type of leaver event, which in this case would be resignation, your shareholder agreement may include specific clauses about how you are able to handle your shares.

For example, if you resign as director of a company and your agreement does not indicate that your resignation requires you to sell your shares, you may be able to retain your shares in the company if you choose.

But if you resign and your shareholder agreement does trigger a leaver event, you may be required to sell your shares. Your agreement will lay out the sales process and may require you to:

  • Sell your shares back to the company
  • Sell your shares to an individual who is chosen by the company
  • Offer your shares to other shareholders within the company

One of the most important considerations for selling shares in a company will be the valuation of your shares. If you need help determining whether your shareholder agreement includes leaver event clauses, please contact The Friedmann Firm. Legal contracts are complex and it is crucial to understand the necessary course of action before making any type of decision that could result in a sale of your shares.

Consult with an Experienced Lawyer When You Plan to Resign

The key takeaway here is that you will need to determine first what is required of you by any kind of shareholder agreement that you have signed. Typically, a shareholder agreement in Ohio will outline the process that you need to follow in terms of selling your shares or any additional steps you need to take.

Once you have made the decision to resign from your company, be sure to consult with an executive employment lawyer from The Friedmann Firm. We can look over your shareholder termination agreement, explain what next steps you need to take and provide legal counsel as you move forward with your resignation.

You can schedule a free and confidential consultation with one of our team members today over the phone at 614-610-9755 or by creating an appointment online.