Minority Shareholder Rights

June 24, 2014

One question that clients often ask us is what rights they have as a minority shareholder in a UK company. Various laws afford minority shareholders with specific protections, which we have outlined below:

1 share

Even if a shareholder owns just 1 share in a company, he still has some basic powers, which includes the right to:

  • inspect the company’s statutory books;
  • attend and be heard at shareholders’ meetings;
  • receive a copy of the annual accounts;
  • seek a ‘winding up’ (i.e. liquidation) of the company on the grounds that it is ‘just and equitable’ to do so (although this is a high threshold to meet); and
  • bring a claim for unfair prejudice.

5% of the company’s shares

Owning 5% of the company’s shares gives a shareholder more ability to influence the affairs of the company, including the right to:

  • require a resolution to be proposed at shareholders’ meetings;
  • require a general meeting be held;
  • require the company to circulate to members a statement relating to a matter referred to in a proposed resolution to be put to shareholders’ meetings; and
  • prevent the deemed re-appointment of the company’s auditor.

10% of the company’s shares

A shareholder owning 10% of the company’s shares has the ability to block the holding of a general meeting of shareholders’ on short notice.

15% of the company’s shares

A shareholder owning 15% of the company’s shares has the right to object to a variation of the class rights of the shares he holds (by requesting that the court cancels the variation).

25% of the company’s shares +1 share

To pass a special resolution, 75% of shareholders must vote in favour of it. Therefore, a special resolution cannot be passed if a minority shareholder owning 25% +1 voting shares in the company opposes the resolution. Special resolutions are required to be passed (amongst other things) to implement the following:

  • alteration of articles of association; 
  • offer to issue shares in the company to existing shareholders other than on a pro-rata basis by disapplying pre-emption rights; 
  • reduction of share capital (also subject to confirmation by the court); 
  • to give, revoke, renew or vary the authority for the company to purchase shares in itself; 
  • change of name; 
  • re-registration of private company to public company; 
  • to redeem or purchase own shares out of capital; and
  • voluntary liquidation.

50% of the company’s shares

To pass an ordinary resolution, a majority of shareholders must vote in favour of it (i.e. 50% + 1 voting share). Therefore, an ordinary resolution cannot be passed if a shareholder holds exactly 50% of the company’s shares. Ordinary resolutions are required to be passed (amongst other things) to implement the following:

  • appointment of director (although this will be dependent on the terms of the company’s articles of association);
  • removal of a director; 
  • entering into a service contract with a director for a period of more than two years; 
  • substantial property transactions involving the transfer of property between the company and a director; 
  • the making of loans or quasi loans to directors and persons connected with directors; 
  • payment to a director of compensation for loss of office; 
  • ratification of past actions of the board of directors where they acted without authority; 
  • removal of auditors; 
  • authority for the directors to allot shares; 
  • alteration of the share capital; 
  • to give, revoke, renew or vary the authority for the company to purchase shares in itself; and 
  • approval of a company voluntary arrangement.

It is worth noting that the above rights are applicable to both private and publically owned companies – additional protections are however given to minority shareholders in public companies.

Fox Williams LLP are experts at advising entrepreneurs and businesses. For more information about how Fox Williams can help you, or for further information on the issues discussed in this article, please liaise with your usual Fox Williams contact.

 


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