Disputes between directors and shareholders can arise for many reasons. If you are a minority shareholder and become engaged in a dispute with the directors or shareholders of the company, it is important to understand your legal rights as a minority shareholder and the options available to you in a dispute.
| What is a minority shareholder?
The distribution of shares in a limited company can be equal between shareholders or unequal. When shareholdings are unequal, the shareholders’ rights may differ depending upon the number of shares they own.
Where an individual holds less than 50% of the shares in a company they may be a minority shareholder. Although this will depend upon the number of shares held by other shareholders.
| Model Articles and the Companies Act 2006
Companies created and incorporated after 28 April 2013 are usually subject to the rules set out in the Companies Act 2006. Where the company is a private company limited by shares, the Articles of Association will often set out the shareholders’ rights.
A company can choose to adopt model Articles of Association or can amend the Model Articles of Association to fit the aims of the business.
| Minority shareholder rights under the Companies Act 2006
So, let’s look at minority shareholders’ rights in companies created under the Companies Act 2006, adopting model Articles of Association with no amendments. In these cases, your rights will vary depending on the percentage shareholding you hold within the company.
Shareholding of at least 5%:
- Call a general meeting;
- Require the circulation of a written resolution to shareholders (in private companies);
- Require the passing of a resolution at an annual general meeting of a public company; and
- Apply to court to prevent the conversion of a public company into a private company.
Where the shareholder has at least 10%:
- Call for a poll vote on a resolution; and
- Prevent a meeting being held on short notice
Shareholding of at least 15%:
- Apply to the court to cancel a variation of class rights, on the basis the remaining shareholders did not consent or vote in favour of the variation
Shareholding of at least 25%:
- Prevent the passing of a special resolution
| Shareholders’ Agreements
Shareholders’ agreements are binding contracts which outline what the shareholders of the company can and cannot do. A shareholder’s agreement can create additional rights and obligations for shareholders over and above those contained in the Articles of Association.
However, it is not compulsory to enter into a shareholder’s agreement when a company is created, or at any other time whilst the company is in existence.
How to deal with a dispute
If, as a minority shareholder, you find yourself in a dispute with the company or other shareholders you may be entitled to bring a claim under the Companies Act 2006.
The merits of bringing a successful will often depend upon the specific circumstances that give rise to a claim, the contents of the Articles of Association and the contents of any shareholder’s agreement that may be in place.
Shareholder claims are personal actions, they are brought by one shareholder against another. The company must remain neutral in these disputes.
There are a number of different types of action open to minority shareholders including:
- a claim for breach of contract;
- winding up the company (but only on ‘just’ and ‘equitable’ grounds);
- a claim that the shareholder has been unfairly prejudiced in some way;
- or potentially a derivative claim. You may have a derivative claim if you consider the actions of another shareholder have damaged the company in some way. You would need to bring such a claim on the company’s behalf. A shareholder needs permission to bring a derivative claim on behalf of the company.
If you would like some more information or advice about Minority Shareholder rights, please call us on 0800 988 7756. Or use our contact form and we will call you back.