Q&As

Can a majority shareholder holding one class of shares in a private limited company (representing 100% of the voting rights) reduce its share capital, so as to cancel all the shares in a separate class held by a minority shareholder? Must the minority shareholder be given notice of the reduction resolution? Could the minority shareholder object to such a reduction?

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Produced in partnership with Brenda Hannigan of Southampton University
Published on LexisPSL on 02/12/2016

The following Corporate Q&A produced in partnership with Brenda Hannigan of Southampton University provides comprehensive and up to date legal information covering:

  • Can a majority shareholder holding one class of shares in a private limited company (representing 100% of the voting rights) reduce its share capital, so as to cancel all the shares in a separate class held by a minority shareholder? Must the minority shareholder be given notice of the reduction resolution? Could the minority shareholder object to such a reduction?
  • Reduction of capital to cancel a class of shares held by a minority shareholder
  • Requirement for notice of the reduction resolution
  • Right of the minority shareholder to object

Can a majority shareholder holding one class of shares in a private limited company (representing 100% of the voting rights) reduce its share capital, so as to cancel all the shares in a separate class held by a minority shareholder? Must the minority shareholder be given notice of the reduction resolution? Could the minority shareholder object to such a reduction?

This Q&A assumes that the company proposing to reduce its capital is a private company limited by shares.

Reduction of capital to cancel a class of shares held by a minority shareholder

A reduction of capital is governed by section 641 of the Companies Act 2006 (CA 2006). This provides that, in the case of a private company limited by shares, a reduction may be effected by a special resolution, supported by a solvency statement given by the directors, or by a special resolution confirmed by the court. A special resolution of the members (or of a class of members) of a company means a resolution passed by a majority of not less than 75% of those entitled to vote in accordance with CA 2006, ss 283(4), 283(5). Therefore, in a situation where the majority shareholder in a company holds 100% of the voting rights, they have the power to pass the relevant special resolution, acting alone.

For a specimen special resolution to be used on a reduction

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