Minority shareholders rights

5 July, 2012

Minority shareholders have certain statutory rights under the Companies Act 2006 and these should be one of the first ports of call in the event of a shareholders dispute.  This article looks at some of the most important of these but you can also follow this link to a table showing the full list of the rights of minority shareholders under the Companies Act 2006.

The first port of call if minority shareholders are concerned about the infringement of their rights is the company’s articles of association.  Not only may these contain provisions and mechanisms that may assist they may also modify certain rights that are otherwise universal under the Companies Act 2006.

Once this has been established then it is necessary to consider what statutory rights the minority shareholders have under the Act.  The extent and effectiveness of these rights will depend upon the size of the shareholding.  Not surprisingly, the larger the holding the greater rights a shareholder has.

Starting at the bottom, all shareholders, whatever the size of their shareholding, have certain rights.  These include the right to ask the court to call a general meeting and to receive notice of any general meeting and vote at the meeting, the right to inspect minutes of general meetings and the register of members and the right not to be unfairly prejudiced.

With a 5% shareholding shareholders have a right to call a general meeting and to require the circulation of a written statement in this respect.

With a 10% holding shareholders have the right to have the company’s annual accounts audited, at the company’s expense.

Over 25% means that a shareholder can block a special resolution.  Such resolutions are required, for example, to amend a company’s articles of association.

What these powers do is give minority shareholders some real leverage.  Sometimes they are sufficient in themselves to enable the resolution of a dispute with a majority shareholder who may, for example, not relish the auditing of the company’s accounts or being held to account at a general meeting.

In any event these rights should not be forgotten as the court will give short shrift to a claim that a minority shareholder has been unfairly prejudiced if they have failed to take proper advantage of their statutory rights under the Companies Act 2006.