A Shareholder Has Stopped Responding: Can Your Company Still Make Decisions?

One of your shareholders has stopped replying.

Emails go unanswered, calls are not returned and they are no longer participating in company decisions. But they have not sold their shares or formally left the company.

Meanwhile, the business still needs to operate. There may be contracts to approve, shares to issue, investors coming in or other company decisions that need to be made.

So, can everyone else simply move ahead without them?

Sometimes. But a shareholder going silent does not usually mean their rights disappear. Whether your company can still make a decision depends on what needs to be approved, your company constitution and Shareholders Agreement, and the notice, quorum and voting requirements that apply.

Does Someone Stop Being A Shareholder If They Stop Responding?

No. A shareholder does not generally stop being a shareholder simply because they stop communicating with the company.

Their shares and the rights attached to them remain in place unless their ownership is formally changed.

The more useful question is whether the company actually needs that shareholder's participation for the decision it wants to make.

Does The Decision Actually Need Shareholder Approval?

Not every business decision needs to go to the shareholders.

Some matters can be decided by the company's directors, while others require shareholder approval. Your Company Constitution or Shareholders Agreement may also set additional rules around voting, reserved matters and who needs to approve particular decisions.

This distinction can be important when a shareholder has gone quiet.

If the decision is something the board can validly approve, an unresponsive shareholder may not prevent the company from moving forward at all. If shareholder approval is required, however, you will need to look more closely at the meeting and voting rules.

Do You Still Need To Give Them Notice?

A shareholder going silent does not generally mean the company can simply leave them out of the notice process.

The Corporations Act 2001 (Cth) contains rules about giving members notice of meetings, including section 249J, and the company's constitution should also be checked.

The important distinction is that giving proper notice and getting the shareholder to participate are two different things.

If the company has followed the applicable notice requirements and the shareholder still chooses not to engage, the next question is whether the meeting can validly proceed without them.

What If They Do Not Attend The Meeting?

This is where quorum becomes important.

Quorum is the minimum attendance required before a shareholders meeting can validly proceed.

Under the replaceable rule in section 249T of the Corporations Act, the quorum for a meeting of members is two members, who must remain present throughout the meeting. However, this is a replaceable rule, so your company's constitution may contain different requirements.

That means you should not assume the remaining shareholders can simply hold the meeting without the person who has stopped responding.

If the required quorum cannot be reached, the meeting may not be able to proceed as planned.

If a shareholder's repeated non-attendance is preventing the company from holding a valid meeting, the issue may also require more than simply sending another notice. In some circumstances, the Corporations Act allows the Court to order that a meeting be called where it is impracticable to call or conduct one in the usual way.

Does It Matter How Many Shares They Own?

Yes, although their ownership percentage is only part of the picture.

Imagine a company has three shareholders who own 60%, 30% and 10%.

If the 10% shareholder stops responding, the other shareholders may still have enough voting power to approve many decisions. But the 10% shareholder does not simply disappear from the process. They may still need to receive notice, and their participation could still matter for quorum or particular rights contained in the constitution or Shareholders Agreement.

A smaller shareholder can therefore still create a governance issue.

This can be particularly important where there are only two shareholders. Even if one owns a relatively small percentage of the shares, a two-member quorum requirement could make their attendance significant.

Voting thresholds matter too. Having enough shareholders present to establish quorum does not necessarily mean you have enough votes to approve the decision.

As a general rule, an ordinary resolution requires more than 50% of the votes cast, while a special resolution requires at least 75%, although the constitution, share rights or Shareholders Agreement may impose additional requirements.

The position can become particularly difficult in a 50/50 company. If one shareholder stops participating, their absence may prevent quorum from being reached or leave the other shareholder without enough voting power to approve a decision.

Depending on the company's governing documents, that may eventually result in a shareholder deadlock, even if the two shareholders are not actively disagreeing.

Can You Use A Written Resolution Instead?

You might think the easiest solution is to skip the meeting and circulate a written resolution instead.

But that will not necessarily solve the problem.

For a proprietary company with more than one member, a circulating resolution under section 249A of the Corporations Act generally requires all members entitled to vote on the resolution to sign in favour of it.

If one shareholder is refusing to engage, that process can therefore get stuck too.

It is another reason to work out which decision-making process actually applies before trying to work around an absent shareholder.

What If They Are Also A Director?

In a small company, the unresponsive shareholder may also be a director.

These are separate roles.

Their absence as a shareholder may affect member meetings and resolutions, while their absence as a director can separately affect board quorum and board decisions.

This is another reason to identify who actually has authority to make the decision before assuming the company is stuck.

Can You Remove Or Take Back Their Shares?

A shareholder going silent does not generally give the company an automatic right to take their shares away.

You would need to check whether there is an appropriate mechanism under the Shareholders Agreement, constitution or another legal process.

For example, an agreement might contain provisions dealing with compulsory transfers, defaults or exits. Whether those provisions can actually be used will depend on how they are drafted and what has happened.

Similarly, issuing new shares simply as a way of diluting an unresponsive shareholder should not be treated as an easy workaround. A share issue can raise separate questions about directors' duties, shareholder rights and the company's governing documents.

If the real objective is to remove the shareholder from the company rather than simply make a particular decision without them, that is a separate issue and it is worth getting legal advice before taking action.

What Should You Do If Their Silence Is Holding Up The Company?

If a shareholder has stopped responding, do not start by asking how to remove them. Start with the decision the company actually needs to make.

Check who has authority to make it, what the Company Constitution and Shareholders Agreement say, and whether the relevant notice, quorum and voting requirements can still be met.

In many cases, an absent shareholder will not stop the company from operating. In others, particularly where their presence or vote is necessary, their silence can create a genuine roadblock.

If an unresponsive shareholder is starting to hold up important company decisions, having your Shareholders Agreement reviewed alongside your constitution can help clarify what the documents allow, whether the company can proceed and what options may be available if it cannot.

If you’d like to talk through your options, call us on 1800 730 617 or email team@sprintlaw.com.au for a free, no-obligations chat.