If you are a shareholder in a small or private company, it is easy to feel taken for granted. You own part of the business, but if you are not a manager or otherwise involved on a day-to-day basis, you can feel left out and in the dark. Sometimes the directors will overlook their responsibility to hold company meetings and provide accounts to shareholders.
For further information, see our guide to Company And Partnership Disputes.
What Powers Does A Shareholder Have?
The larger your shareholding, the greater your rights. However, have a look at the company’s Articles of Association (its constitution). It might give you special rights which the law generally does not.
All shareholders, however many shares they hold, can attend and vote at a general meeting of the company. If you own at least 5% of the shares you can call a general meeting, and require a written statement to be circulated to all other shareholders.
There’s a useful right if you own 10% of the shares or more, and have concerns about the company finances. You can have the company’s annual accounts audited (at the company’s expense).
While these powers might not seem to be much, they are often enough to bring a majority shareholder or board of directors into line. The threat of having to explain themselves at a general meeting, or of having the accounts audited, can be sufficient to cause a change of behaviour.
You have a very useful power if you own 25% or more of the shares, which is to block or prevent the passing of a ‘special resolution’. A resolution like this would be required to change a company’s Articles of Association. A majority shareholder might want to try to change the Articles of Association to give them greater voting rights, for instance.
What Else Can A Minority Shareholder Do?
The ultimate shareholder weapon to try to exercise control over the company is to remove a director. However, that requires a 50% shareholding, and so if you’re a minority shareholder that option is not available. What else can you do?
As a minority shareholder you can ask the court to become involved, if you are being excluded from management. Or if the company is being run in an ‘unfairly prejudicial’ way. The court has the power to order a full account of the affairs of the company, and even to order that the company is sold or wound up.
In some circumstances, you can also bring an action in the name of the company against the directors. You would do this in a situation where the director has made a profit at the company’s expense, for instance.
It is important to take advice about a particular set of circumstances. Call us today to discuss your situation and how we can help.
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