You’re part owner of a company and just because you have less than 49% of the shares, you have no say right?
Well, in Company Law, a minority shareholder does have limited influence over the management of their company but you can take steps to protect yourself and you do have rights if the decision makers do something which adversely affects your shareholding.
Insist on a Shareholders Agreement at the outset.
As a minority shareholder, press for a Shareholders Agreement, which is a legally binding contract between you and your fellow shareholders, which should set out rights you have and limits what the majority shareholders can do without your consent – unanimous voting requirements on certain decisions for example.
Having a Shareholders Agreement can also go along way to ensuring disputes are avoided or when they do occur, setting out a mechanism for resolution. Speak with our Commercial Team, we’ll knock one up for you.
What if you don’t have a Shareholders Agreement or it doesn’t resolve your issue?
Well, the law is there to help. Section 994 of the Companies Act 2006 provides that a shareholder may apply to the court for relief if company decisions are being made which are prejudicial to the interests of some, or all of the shareholders – this is known as an Unfair Prejudice.
To succeed in such a claim, you’d have to show that the way in which the company is being run causes harm to your interest and that this amounts to ‘unfairness’. Unfairness is an objective test so in other words, would a reasonable person consider it unfair.
There are other actions available including applying for the winding up of the company and suing the directors in negligence (a Derivative Action)
And what remedies are available to you?
Where the court finds that a shareholders interest has been unfairly prejudiced, the appropriate remedy is often to order the majority shareholder to purchase the minority shareholder’s shares at a fair value. Other remedies available include requiring the company to refrain from the action which is causing the damage.
In Derivative Actions, your claim would be for damages.
And finally …
Where a dispute arises, negotiation with your fellow shareholders should be your first port of call. If that doesn’t work, call me.