Company law - minority shareholder

A shareholder does not have a right to financial information and might only see the annual accounts, quite possibly abbreviated, long after the year end. The shareholder has no contractual rights against another shareholder nor against the directors. There are no means of legal resort without the assistance of the courts, for example CA section 994, and only very limited rights against the Company under the articles - not that a shareholder would necessarily wish to sue his or her own asset. When trouble emerges, absent a shareholders agreement, the shareholder is in a very poor position.

The shareholder will be in a better position if a director and or holding a substantial number of shares - but not always - read on. As a director the shareholder must have full access to all the Company's records and be informed of all the Company's activities on request if not already acquainted through personal management/ involvement. Yet we have also seen a case of a 60% shareholder (yes sixty per cent) who was also on the board (yes on the board) yet for many years had been - and allowed himself to be - excluded from the Company's management and information. The Company was milked for many years for all it was worth by wrongdoers leaving no reward for the shareholder. This was partly his fault for not involving himself/ seeing a specialist solicitor and partly a result of the sheer force of character of the the wrongdoers.

We have seen another case recently where the shareholder was not on the board and held only 7.5% (the classic minority shareholder) yet was able to lead a nuisance campaign over several years eventually forcing a settlement during a court trial. No real wrong doing by the insiders yet, again, no shareholders agreement.

A shareholders agreement should provide, amongst other things, that the shareholder will receive financial information and will be assured of a decent valuation should he wish to leave the company. Such an agreement can include a provision requiring a shareholder to sell his shares in stiputated circumstances. Without this an unwanted/ awkward shareholder can hold the others hostage as general law does not provide for a compulsory sale.

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