If there is no leaver clause, you cannot force a co-founder of a Singapore company to give up their shares just because they stop working in the business. The majority shareholders can usually remove them as a director by ordinary resolution, and the company can end any employment under the contract, but the shares stay with the co-founder unless they agree to sell or the constitution or a binding agreement says otherwise. In practice, removing a co-founder without a leaver clause means negotiating an exit: agreeing a price, choosing between a transfer and a share buy-back, securing the company’s intellectual property, and filing the changes with ACRA.
This guide is for founders and majority shareholders who need to remove a co-founder who has stopped contributing, and for co-founders who have been asked to leave.
What can you actually remove?
A co-founder usually holds several separate positions, and each one ends in a different way. Treating them as one decision is the most common mistake.
| Position | Who decides | How it ends | Can it be done without the co-founder’s agreement? |
|---|---|---|---|
| Director | Shareholders | Ordinary resolution under section 152(9) of the Companies Act 1967, subject to the constitution | Usually yes, if you hold the majority of votes |
| Employee or executive | The company, usually through the board | Under the employment contract and, where it applies, the Employment Act 1968 | Yes, but notice, pay and dismissal rules apply |
| Shareholder | The co-founder | Sale to other shareholders, sale to a new investor, or a share buy-back | Generally no, without a clause in the constitution or a binding agreement |
| Bank signatory, Corppass user, system access | The board | Board resolution and notice to the bank or platform | Yes, once the board has acted |
| Owner or user of key IP and domains | Depends on who legally owns them | Assignment or licence | Only if the company already owns them |
The mechanics of removing a director, including notice and the ACRA filing, are covered in our guide on how to remove a director from a Singapore private company. Where the co-founder is also employed, read when a director is also an employee before acting, because the two positions end separately.
Why can’t the majority simply take back the shares?
Shares are property. Under section 39 of the Companies Act 1967, the constitution binds the company and its members, and the standard model constitution contains no general power to force a member to sell. If there is no shareholders’ agreement with a leaver or compulsory transfer clause, the co-founder is entitled to keep the shares, receive any dividends declared, vote at general meetings and remain on the register.
Some majorities consider amending the constitution by special resolution to add a compulsory transfer provision after the dispute has started. That is risky. An amendment aimed at expropriating one member can be challenged, and conduct that unfairly excludes a co-founder can support an application under section 216 for relief from oppression or unfair prejudice. In companies run on mutual trust between founders, Singapore courts may also consider winding the company up on the just and equitable ground under section 125(1)(i) of the Insolvency, Restructuring and Dissolution Act 2018. A negotiated exit is almost always cheaper and faster.
If your shareholders’ agreement does contain leaver terms, the position is different; see good leaver and bad leaver clauses.
How do you plan a negotiated exit?
- Collect the documents. Constitution, any shareholders’ agreement or founder agreement, employment or service contracts, the cap table, recent management accounts and any IP assignments. Check for hidden terms, such as founder vesting in an investor’s subscription agreement.
- Decide what you actually need. Control of the board, a clean cap table for a funding round, the IP, or simply that the co-founder stops working against the company. A co-founder who keeps a small passive stake may be acceptable if the IP and board are secured.
- Protect the company without overreaching. The board can review access rights for company systems and bank mandates through proper resolutions. Do not lock a sitting director out of company records, and do not withhold pay that is due.
- Open the negotiation in writing. Propose a price range, a structure and a timeline. Mark the proposal “without prejudice” and “subject to contract” so that early offers are not binding or usable in later litigation.
- Agree the valuation basis. Agree the method before arguing about the number (see the table below). An independent valuer can be jointly appointed if the parties are far apart.
- Sign an exit deed. One document should cover the share sale or buy-back, resignation as director, end of employment, IP assignment, confidentiality, any restraints, mutual releases and payment terms.
- Pass the corporate approvals. Board and shareholder resolutions for the transfer or buy-back, acceptance of the resignation and changes to signatories.
- Complete the filings. Notify ACRA of the change in directors within 14 days under section 173A, lodge the share transfer or buy-back notice, and update the registers.
How should the co-founder’s shares be priced?
| Method | When it fits | Watch out for |
|---|---|---|
| Net asset value | Asset-heavy or early companies with little profit | Ignores goodwill and growth, which the co-founder may have helped build |
| Earnings multiple | Profitable trading companies | Disagreement over normalised profit and the right multiple |
| Price at the last funding round | Venture-backed start-ups with a recent round | Preference shares and investor rights make ordinary shares worth less than the headline price |
| Discounted cash flow | Companies with predictable contracts | Highly sensitive to assumptions |
| Nominal or cost price | Co-founder left very early and contributed little | Hard to agree without a leaver clause; may look unfair if challenged later |
Also agree whether a discount applies because the stake is a minority. In court-ordered buy-outs, the treatment of minority discounts depends on the facts; our article on how courts value shares in section 216 buy-outs explains the factors. Payment can be split into instalments or linked to future performance, but the deed should give the seller security, such as shares held in escrow until the final payment.
Should the shares be transferred or bought back by the company?
| Point | Transfer to remaining shareholders | Company buy-back |
|---|---|---|
| Who pays | The buying shareholders, personally | The company |
| Legal requirements | Instrument of transfer, board approval under the constitution, notice of transfer lodged with ACRA | Constitution must expressly permit it (section 76B); the company must be solvent (section 76F); approvals under sections 76B to 76G |
| Approval for buying from one shareholder | Board, and any pre-emption process in the constitution | A selective off-market purchase needs a special resolution, with no votes cast by the seller or associated persons (section 76D) |
| Stamp duty | 0.2% of the higher of the price or the net asset value of the shares, per IRAS guidance on buying shares | Confirm the stamp duty and tax treatment with your adviser before signing |
| Effect on cap table | Buyers’ percentages increase | Shares bought back are generally cancelled unless held as treasury shares where permitted; all remaining holders increase proportionately |
Where the shares bought back are only part of a class, further class consent requirements under section 76D can apply, so confirm the approval route before the meeting is called.
What about IP, confidentiality and competition?
Many founding teams never signed IP assignments. Code written, designs created or a brand registered before incorporation, or by a co-founder who was never an employee, may still belong to that co-founder personally. The exit deed should:
- assign to the company all IP the co-founder created for the business, including pre-incorporation work, domain names and social media accounts;
- confirm the return or deletion of company documents, data and devices;
- include continuing confidentiality obligations;
- include non-solicitation of staff and customers, and any non-compete, for a reasonable period and scope. Singapore courts apply the restraint of trade doctrine, so restraints that go further than necessary to protect legitimate interests may be unenforceable;
- contain mutual releases of claims, and agreed wording for announcements to staff, customers and investors.
What if the co-founder refuses to sell?
You can still remove them as a director, end any employment properly and run the company as majority shareholders. The co-founder remains a member with statutory rights, including the right to attend general meetings and to requisition a meeting if they hold at least 10% of the paid-up voting shares (section 176).
Run the company carefully from that point. Excluding the co-founder from information they are entitled to, paying the majority excessive salaries, diverting opportunities or issuing shares to dilute them can all be raised as oppression. See what the court can order under section 216. A standing offer to buy at a fair, independently assessed value, combined with mediation, often resolves the stalemate.
Example: a co-founder who stopped turning up
Example (hypothetical): Three co-founders set up a Singapore e-commerce company, holding 40%, 35% and 25%. They never signed a shareholders’ agreement and adopted the model constitution. After two years, the 25% co-founder takes a full-time job elsewhere but remains a director and keeps the shares.
The other two hold 75%. They pass an ordinary resolution removing the 25% co-founder as a director and the company secretary files the change with ACRA. They then offer to buy the shares. The parties jointly instruct a valuer, who values the company on an earnings multiple. The departing co-founder accepts a price paid in three instalments, with the shares transferred in tranches as each instalment is paid.
The exit deed also assigns to the company the storefront code he wrote before incorporation, and contains confidentiality, a twelve-month non-solicitation of staff and mutual releases. Each share transfer is stamped and the notices of transfer are lodged with ACRA. A future investor’s due diligence finds a clean cap table and clear IP ownership.
Exit deed checklist
- Parties: the departing co-founder, the buying shareholders and the company
- Number and class of shares, price, payment schedule and security
- Resignation as director and confirmation of no claims for loss of office
- End of employment, final pay and any notice arrangements
- IP assignment, including pre-incorporation work and digital accounts
- Confidentiality, non-solicitation and any non-compete
- Repayment of any director loans in either direction
- Release of personal guarantees given by the co-founder
- Mutual releases and non-disparagement
- Board and shareholder resolutions, transfer forms or buy-back documents
- ACRA filings and stamp duty
Frequently asked questions
Can we cancel the co-founder’s shares if they never paid for them?
Unpaid shares are a debt owed to the company and can usually be called up, and the constitution may allow forfeiture for non-payment after proper notice. That is a different process from removing a co-founder and must follow the constitution exactly. Take advice before relying on it.
Can we dilute the co-founder by issuing new shares?
Share issues need shareholder approval under section 161, and an issue made mainly to reduce one member’s percentage, rather than to raise money the company needs, can be challenged as oppression. Dilution is not a safe substitute for a negotiated exit.
Does the departing co-founder still receive dividends?
Yes, if dividends are declared, a shareholder receives them in proportion to their shares, whether or not they still work in the business.
Should we add a leaver clause now for the remaining founders?
Yes, this is worth doing once the exit is complete. A shareholders’ agreement signed by all remaining shareholders, and if appropriate a constitution amendment by special resolution, can set leaver terms for the future.
Does the co-founder have to resign voluntarily for ACRA purposes?
No. A valid removal by shareholder resolution ends the directorship. The company must notify ACRA within 14 days, while still ensuring at least one director remains ordinarily resident in Singapore.
Need help with a co-founder’s exit?
If your company, or you as a director or shareholder, is dealing with a co-founder who needs to leave and there is no leaver clause, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles shareholder and founder disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
Willie Tan, Raffles Corporate Services