Are Shareholders Required to Work in the Company?

In newly established or startup companies, it is common for shareholders to be not only investors but also active participants in the company’s operations, sharing tasks and risks. However, over time, one of them may stop fulfilling their work commitments, while the others continue to carry the operational burden of the company. Meanwhile, that shareholder remains an owner, taking part in decisions and receiving dividends. The question many entrepreneurs face in this situation is: Can they be required to work? Or excluded from the company?

Legally, there is no statutory obligation for a shareholder to work in the company in which they hold shares, unless there is an employment contract or such an obligation has been agreed upon in a shareholders’ agreement. The law distinguishes between two separate relationships: the shareholder relationship, which is corporate in nature, and the employment relationship, which is labor-related.

As a shareholder, a person is only required to fulfill the commitments arising from the corporate contract: to make their contribution in exchange for their shares, comply with the bylaws, and act in accordance with the law. They are not required to personally render services to the company. However, there is an important exception that must be expressly included in the corporate bylaws — the “industry contribution” (Articles 137 and 138 of the Colombian Commercial Code). In this case, the shareholder’s contribution is their work or expertise, and that service constitutes their main obligation to the company. If they fail to provide it, they are in breach of their contribution obligation.

By contrast, as an employee, a person is required to fulfill duties, schedules, and orders under the employer’s direction. If the shareholder fails to perform their work duties, they may be sanctioned or dismissed as an employee, but they do not lose their status as a shareholder.

When a shareholder is dismissed as an employee, they continue to receive dividends and exercise their voting rights. This situation often creates internal tension, resentment, and imbalances that frequently escalate into corporate disputes.

Therefore, the key is prevention from the start, by designing legal mechanisms that prevent a passive shareholder from remaining indefinitely in the company, such as:

1. Exclusion clauses: The bylaws may provide that the loss of the employment relationship or failure to meet operational obligations allows the company to exclude the shareholder or compel the repurchase of their shares (Article 39 of Law 1258 of 2008). It should be noted that including or modifying such a clause requires unanimous shareholder approval, and this mechanism requires reimbursement of the shareholder’s contribution under Law 222 of 1995.
2. Shareholders’ agreements: These may condition shareholding or voting rights on the fulfillment of certain functions (Article 24 of Law 1258 of 2008) or establish rules for the exit of a shareholder in conflict.
3. Vesting or buyback plans: Through these plans, shares are acquired gradually and may be forfeited if the shareholder benefiting from the plan ceases to participate actively.
4. Voting majorities: Except for those required by law, it is advisable to avoid including special majorities such as unanimity for decision-making by the company’s highest governing body.

If none of these provisions exist, the only solution is often to negotiate the purchase of the inactive shareholder’s shares, which usually involves additional effort and cost.

In conclusion, being a shareholder does not mean being required to work, and therefore, in companies where the partners intend all members to actively contribute to the company’s development, it is advisable to establish from the outset what will happen if one of them stops contributing their work. It should be noted that these recommendations do not apply to all companies, since by their nature, not all corporations require their shareholders to work in them.

Written by: María Isabel Peléz