What Happens When an Owner is Fired?

young frustrated businessman

Every owner or founder of a company knows the risk of eventually being fired. It’s business as usual and happens for a variety of reasons. A person’s enterprising idea may be a hit, but if they’re not successful when it comes to executing the business strategy, they’re not long for the job. On the other hand, a company may become so successful, it leaves some owners behind. Company politics can also play a part in a board’s decision to fire an owner, especially when it comes to differing styles of leadership. Once a decision is made you may be past the point of business dispute resolution. These decisions are often made by the controlling owners when companies are struggling financially. Businesses exist to make money. The axe will come down when a company is struggling to meet or exceed projections. This is why keeping an ear to the ground is essential. 

Know What it Takes to be Fired 

Is evidence of misconduct or having ‘just cause’ the only way to be let go or can it be as simple as a vote among board members? There are several ways an owner can be fired from the company they hold shares in or founded. As companies bring in outside investors, shares are divided. A company’s founder can soon find him or herself owning less than fifty percent of the shares in their business. This translates to a loss of control over the company, as well as an increased likelihood of being fired if things go bad. Once this happens there’s not much the owner can do to hang onto their position. Contracts are another way of being shown to the door especially when the company changes direction and new rules apply. Always know what you’re signing and watch for grounds for wrongful termination.

An Owner’s Shares

Being terminated does not mean a loss in shares. If the ousted owner maintains their shares, they could still have a say in some of the company’s practices. For this reason, the remaining shareholders will want to buy back the shares to sever the link between the owner and the company. This makes contracts extremely important. A proper employment agreement, signed on paper, will ensure certain rights if you’re an ousted owner. When it comes to selling your shares, prior agreements may have already been established—a shareholder agreement that benefits the collective rather than the one being terminated. Specifics about procedure and equitable pricing of shares are important to know ahead of time. When it comes to a person’s wallet or a company’s bottom-line, it’s more than business as usual.

Know What You’re Signing

Other terms for departure of an ousted owner will most likely be in place. These may include boundaries for future communications with clients and remaining employees. The owner being shown the door most likely knows the deepest secrets of their company’s business practices and financial dealings. Silence is a hot commodity during the termination process which can drive up the price of the shares. Often it’s not just shares that are being purchased. The business world can be as cruel as it is rewarding.  For the best outcome, keep your eyes wide open and good contract in your hands.