Checklist for voting rights absent a shareholders agreement or special articles of association.

Majority Shareholdings: if you hold a majority of the shares (50% plus 1 share) you can pass or prevent the passing of ordinary resolutions.

Ordinary resolutions are required to:

• approve a final dividend (though directors will generally also have the power to declare interim dividends);
• appoint or remove directors (in addition to the directors’ ability to appoint co-directors);
• (unless the company is a private company with only one class of shares), authorise the directors to allot  shares (and to renew, revoke and vary such authorisation);
• determine the rights to be attached to any new shares which are issued;
• approve long-term service contracts (lasting more than two years) with directors;
• approve loans to directors or substantial property transactions with directors (or their connected parties);
• pay compensation to a director for loss of office;
• ratify breaches of duty by a director;
• authorise political donations by the company;
• appoint or remove auditors or agree limitations on their liability;
• subdivide or consolidate shares;
• issue bonus shares to shareholders.

Special Resolutions

Certain more fundamental matters relating to a company require a special resolution. If you hold 75% or more of the shares you can ensure the passing of a special resolution. If you hold more than 25% of the shares (i.e. 25% plus 1 share) you can block the passing of a special resolution.

Special resolutions are required to:

• amend the company’s articles of association;
• change the company name;
• re-register the company as a public company;
• disapply members’ pre-emption rights when new shares are issued;
• reduce the company’s share capital;
• allow the company to buy back shares (including out of capital);
• wind the company up (though directors and creditors may also apply to court to initiate the winding up process   in certain circumstances);
• if the company is being wound up in a solvent members’ voluntary liquidation, to authorise the liquidator to take certain steps in relation to the liquidation;
• to approve a scheme of arrangement or compromise with creditors proposed to be entered into by the company. 

Class Rights

Where the company has more than one class of share, the consent of the holders of 75% or more of that class is required for certain matters and so if you hold more than 25% of the shares of that class (i.e. 25% plus 1 share) you can block the giving of that consent. Such matters include:

• variation of class rights;
• to approve a scheme of arrangement or compromise with creditors proposed to be entered into by the company.
• Other rights of minority shareholders

If as a shareholder you have less than 25% of the shares (or less than 25% of any one class) you have very limited powers of control over the company. For that reason, minority shareholders should always consider negotiating specific minority protections at the point at which they become shareholders. However, there are some residual protections under the Companies Act which should be noted.

Takeovers

10% is a key threshold in relation to takeover offers. If somebody makes an offer to buy the company and they can acquire 90% or more of the shares, they can require the remaining shareholders to sell their shares for the same price. Equally, in those circumstances, the minority shareholders can require the buyer to buy them out for the same price. If you hold more than 10% of the shares, then you cannot be forced to sell out. However, in private companies (see discussion of drag along and tag along below) this position is often varied by agreement.

Other minority rights

• If you hold 15% of the shares of any one class, you have the right to apply to court to object to a  variation of class rights (even if passed by a special resolution of that class.
• If you hold 10% of the shares, you can demand that votes at a general meeting are taken on a poll basis (one  vote per share) rather than on a show of hands (essentially one vote per shareholder).
• If you hold 5% of the shares, you can requisition a general meeting of the company and require the company  to send a statement to all members concerning a matter to be considered at a general meeting.
• Contractual Protections

Although, there are legal remedies for a shareholder prejudiced by unfair conduct of the directors or majority shareholders, it can be difficult to obtain redress. So shareholders will often agree to vary the statutory regime, in a shareholders agreement or articles of association. Often, for example, shareholders will seek specific additional rights to improve their position – e.g. to appoint a director; to receive certain information (bearing in mind that a shareholder’s general right to information is essentially limited to receiving annual accounts and notices of proposed resolutions); and/or to veto certain actions by the company. Ideally those rights would be framed as class rights attaching only to the shares held by the minority shareholder as this offers additional protection against changes.

The 90%/10% thresholds in relation to takeovers are also generally seen as too high from both a majority and minority perspective. It’s therefore usual to agree drag along and tag along rights to protect both majority and minority. A drag along right allows the holders of a specified majority (below 90%) to require all other shareholders to sell on the same terms. A tag along right allows the minority to sell on the same terms as the majority and typically applies where more than 50% of the shares are sold. 

Back to basics: the key thresholds are at 50% (plus 1 share) and 75% but it is rarely sufficient to rely on the default provisions.