You Can’t Just Stop Being a Shareholder

This post explains why, in the U.S., one can’t just stop being a shareholder. I decided to write it after addressing this issue on Quora. Please see Corporate Law: What is the best method to abandon stock in a private company?

Ways to Stop Being a Shareholder

Corporate law does not permit a shareholder to unilaterally dispose of his or her shares. As a result:

• One cannot “abandon” shares.
• One cannot simply stop being a shareholder.
• Instead, one must find someone to take (or buy) the shares.

One needs someone else’s cooperation to transfer shares. Potential candidates for taking one’s shares include the following:

• The corporation might redeem or repurchase the shares, perhaps paying a nominal sum.
• Another existing shareholder might take or buy the shares.
• A non-shareholder third party might take or buy the shares, if no share transfer restrictions prohibit the transaction.

LLCs are Different

Limited liability companies, in contrast, allow members to withdraw (in effect, terminate their LLC equity interests).

In California, for example, Corporations Code Section 17706.01(a) states the following (emphasis added).

A person has the power to dissociate as a member at any time, rightfully or wrongfully, by withdrawing as a member by express will pursuant to subdivision (a) of Section 17706.02.

Section 17706.02, in turn, states the following (emphasis added).

A person is dissociated as a member from a limited liability company when any of the following occur:

(a) The limited liability company has notice of the person’s express will to withdraw as a member….

For more information about withdrawing from LLCs, please see A Member can Withdraw from an LLC, Despite the Operating Agreement.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.