Shareholder Rights and Disputes

Shareholders are individuals who own shares within a company. Essentially, shareholders are, collectively (assuming that a company has more than one shareholder), the owners of the company.

Consequently, shareholders have a vested interest in the commercial success or failure of a company. Success will of course mean that the share valuation in a company rises.

However, given the financial consequences in play in regard to the shares of a company, feelings between the shareholders can often become heated where shareholders may disagree on the direction a company should be heading in, or indeed if certain shareholders feel that they are being marginalised by their co-shareholders.

In these situations, disputes can arise and escalate to the point where legal intervention may be necessary to resolve the disagreement.

All shareholders of companies in the UK have, irrespective of the size of their shareholding, the right to:

• receive notice of General Meetings and inspect the minutes;
• ask a court to call a General Meeting;
• not to be unfairly prejudiced;
• a share certificate;
• have their name entered on the Register of Members; and
• inspect the register of directors’ service contracts without charge.

However, the size of a shareholding does become relevant in relation to certain decisions and operations of a company. Minority shareholders, therefore, can still significantly impact certain situations, provided that a private bespoke shareholder agreement does not restrict such power.

For example, shareholders with a shareholding greater than 25% can block a special resolution, whilst shareholders with a shareholding greater than 10% can block consent to short notice for a general meeting.

Conversely, majority shareholders in a private limited company hold significant power depending on the size of their shareholding. Ultimately the greater the shareholding, the greater power the shareholder can exert. For example, a shareholding of more than 90% will permit the shareholder to consent to the short notice of a general meeting.

Further, a shareholding of 75% or more will enable the passing of a special resolution, whilst a shareholding greater than 50% will enable the passing of an ordinary resolution.