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 the company can still make a decision depends on what needs to be approved, the Companies Act 1993, the company's constitution, any Shareholders Agreement and the voting or meeting 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 their participation for the particular decision it wants to make.

Does The Decision Actually Need Shareholder Approval?

Not every company decision needs to go to the shareholders.

Some matters can be decided by the 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 matters when someone 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, the company needs to work out whether it can still follow the required process without them.

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 meeting process.

Under Schedule 1 of the Companies Act 1993, written notice of a shareholders' meeting must generally be sent to every shareholder entitled to receive notice at least 10 working days before the meeting, subject to the company's constitution.

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

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

What If They Do Not Attend The Meeting?

This is where quorum becomes important.

Under the default rules in Schedule 1 of the Companies Act 1993, quorum is generally present where shareholders, proxies or postal voters who can together exercise a majority of the votes on the business being considered are participating. The company's constitution can change that position.

That means an absent shareholder does not automatically prevent a meeting from going ahead.

If the remaining shareholders can exercise a majority of the relevant votes and the constitution does not impose a different requirement, quorum may still be possible.

If quorum is not present, the Act contains rules about what happens next, including adjournment in many cases. Sprintlaw's guide to meeting procedures for New Zealand companies covers those mechanics in more detail.

Does It Matter How Many Shares They Own?

Yes, and in New Zealand this can be particularly important because the default quorum rule is linked to voting power.

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

If the 10% shareholder stops responding, the remaining shareholders may still have enough voting power to establish quorum and approve many decisions.

If the 60% shareholder stops responding, however, the remaining shareholders may not have enough voting power to satisfy the default quorum requirement or approve the decision.

Ownership percentage is not the only consideration. The shareholder may hold a particular class of shares or have specific consent rights under the constitution or Shareholders Agreement.

The position can also become difficult in a 50/50 company, where one shareholder's refusal to participate may prevent the other from reaching the necessary voting threshold or progressing important decisions.

If that starts bringing the company to a standstill, the issue may develop into a company deadlock.

Can You Use A Written Resolution Instead?

Sometimes.

Section 122 of the Companies Act 1993 allows certain shareholder decisions to be made by written resolution instead of holding a meeting.

Under the statutory procedure, a written resolution generally needs to be signed or assented to by shareholders who together hold at least 75% of the votes entitled to be cast on the resolution, or a higher percentage if the constitution requires one.

This means an unresponsive minority shareholder may not necessarily stop a written resolution from being passed.

For example, if an unresponsive shareholder holds 10% and the remaining shareholders together hold 90% of the relevant voting rights, they may still be able to satisfy the section 122 threshold, depending on the constitution and the particular resolution.

The Act also requires the company to notify shareholders who did not sign the resolution after it has been passed.

A written resolution can therefore be useful in some cases, but it should not be treated as an automatic workaround without checking the applicable requirements.

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 shareholder 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.

If the real issue is removing the shareholder rather than making a decision without them, the constitution and Shareholders Agreement should be checked for transfer, default, exit or other relevant provisions.

That is a separate question from whether the company can continue making decisions while the shareholder is unresponsive.

If the agreement already exists, having the Shareholders Agreement reviewed can help clarify what rights and processes actually apply.

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

If a shareholder has stopped responding, start with the decision the company actually needs to make.

Check whether it belongs to the board or shareholders, what the constitution and Shareholders Agreement require, and whether the necessary notice, quorum and voting requirements can still be satisfied.

In some cases, particularly where the absent shareholder owns a smaller percentage, the company may still be able to proceed. In others, their voting power or specific rights may create a genuine roadblock.

If the usual process no longer works, section 123 of the Companies Act 1993 also gives the Court power in certain circumstances to order a shareholders' meeting where it is impracticable to call or conduct one normally.

Getting the company's governing documents reviewed early can help establish whether the business can keep moving and what options may be available if it cannot. If you would like help with this, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.