Rights for Minority Shareholders

As a minority shareholder in a business how do you protect your rights especially if there is a disagreement with other shareholders?

It is important to have a shareholder agreement in place and this should specifically cover how minority shareholders will be protected if a range of issues arise. This should include a provision for a minority shareholder’s shares to be purchased by the remaining shareholders and also for a fair price, in the event that a disagreement is too great to resolve.

If there is no shareholder agreement in place the Companies Act 2006 does offer some protection. Any shareholder can (with or without a shareholder agreement) petition the Court for Unfair Prejudice pursuant to Section 994 of the Companies Act 2006.

It is important to demonstrate that the conduct which has been complained of must be causing prejudice or harm and it must be unfair.  This could include failure to pay dividends, failure to disclose accounting information, exclusion from management and serious mismanagement and diverting business to another company where the minority has no shareholding.

For a successful ruling, it needs to be demonstrated that there is an adverse effect on the minority shareholder/s and that this isn’t in accordance with the Articles of Association or any Shareholders Agreement. Typically, a Court may require the company not to do the act/s complained of, require them to do an act/s they have not done or provide for the purchase of shares from the shareholder/s.

The Court does however have other powers as well which could include authorising civil proceedings on behalf of a company and regulating the conduct of the company’s affairs in the future.

Before taking any action, it is important to take legal advice to discuss the options open to you.

Sarah Astley can be contacted at s.astley@gullands.com