20. Handling a Non-Performing Shareholder
What to do when a business partner isn’t pulling their weight.
Imagine this - You and a business partner started your company with equal shares and shared enthusiasm. But over time, you’ve noticed a shift—while you continue to put in long hours and drive the business forward, your fellow shareholder has become disengaged. They’re missing meetings, failing to deliver on responsibilities, and yet still expecting equal financial benefits from the company’s success.
You’re frustrated and resentful. Employees have started to notice the imbalance, questioning why you’re carrying the workload while your partner remains passive. The longer the situation continues, the more damage it does—to morale, productivity, and ultimately, your business’s long-term success.
The challenge? Unlike employees, shareholders aren’t easily “fired.” Their investment gives them legal rights, and navigating the situation requires a careful balance of legal, financial, and interpersonal considerations.
Common Reasons a Shareholder May Stop Contributing -
Loss of motivation – They may no longer feel passionate about the business.
External distractions – Other commitments, personal issues, or competing business interests take priority.
Complacency – They may assume the business can run without their active involvement.
Strategic disagreements – They may feel disconnected from the business’s direction.
The longer the issue goes unaddressed, the harder it becomes to resolve. If ignored, it can lead to business stagnation, financial disputes, and even legal battles.
The Solution – Addressing the Issue with Strategy and Professionalism
Dealing with an inactive shareholder requires a structured approach that balances professionalism, fairness, and legal compliance. Here’s how to handle it effectively -
1. Assess the Impact and Gather Objective Data
Before taking action, clarify exactly how their lack of contribution is affecting the business.
Are they failing to meet specific contractual obligations?
Are their responsibilities clearly outlined in the shareholder agreement?
Has their disengagement caused measurable damage (missed opportunities, financial loss, workplace disruption)?
Gathering clear evidence of their inactivity helps ensure the conversation stays fact-based rather than emotional.
2. Have an Honest and Strategic Conversation
Approach the shareholder with professionalism and a solutions-oriented mindset.
Schedule a private meeting in a neutral setting.
Start with a constructive tone -
“I want to discuss the future of the business and how we can ensure it remains strong. I’ve noticed some gaps in involvement, and I’d love to hear your thoughts on how we can rebalance responsibilities.”
Stick to facts rather than emotions—outline the workload imbalance, the impact on business operations, and expectations moving forward.
Listen to their perspective—there may be underlying personal or professional reasons for their disengagement.
Psychological research shows that people respond better to discussions framed as collaboration rather than confrontation. The goal is to re-engage them or reach an amicable transition plan.
3. Explore Re-engagement Options
If they express a willingness to contribute but don’t know how to re-engage, offer structured solutions -
Clarify expectations – Outline key responsibilities and performance metrics.
Redefine their role – If they no longer fit in an operational role, they may contribute in an advisory capacity instead.
Set a trial period – Agree on a timeframe (e.g., three months) to assess whether they can step up their involvement.
If they resist change, this signals the need for a transition strategy.
4. Review the Shareholder Agreement and Exit Options
If the shareholder remains disengaged, review the legal framework that governs their involvement. Key questions to consider -
Does the shareholder agreement specify a minimum contribution?
Are there buyout clauses for inactive shareholders?
What are the terms for share dilution or forced sale?
Possible exit strategies include -
Share buyout – You or other shareholders purchase their shares at an agreed price.
Dilution of ownership – If they fail to contribute, their shares could be reduced over time (depending on agreement terms).
Legal action – As a last resort, legal steps may be taken if their disengagement violates contractual obligations.
5. Maintain Business Stability During the Transition
Handling a disengaged shareholder can be disruptive—so ensure the business remains stable throughout the process -
Keep employees informed (at a high level) to avoid speculation.
Reassure key clients and partners if necessary.
Ensure financial continuity—if the shareholder’s exit involves financial restructuring, consult an accountant or business advisor.
By keeping the business’s best interests at the forefront, you minimise risk while maintaining professional integrity.
Reflective Scenario – What Would You Do?
Your fellow shareholder has stopped attending key meetings, contributing to decisions, or fulfilling their responsibilities. Employees are frustrated, and you’re carrying most of the workload.
Using the strategies above, you might -
Have a direct but professional discussion about their disengagement.
Offer a structured way for them to re-engage in the business.
If necessary, propose an exit strategy based on shareholder agreement terms.
By handling the situation strategically, you protect the business while maintaining professionalism.
Golden Nugget - "Business partnerships are like marriages—when one side stops contributing, either the relationship must be repaired, or an exit must be negotiated."
By addressing disengagement early, structuring clear expectations, and having a legally sound shareholder agreement, SMEs can protect their business and ensure long-term stability.