Protection of minority shareholders—a quick guide
Protection of minority shareholders—a quick guide

The following Corporate practice note provides comprehensive and up to date legal information covering:

  • Protection of minority shareholders—a quick guide
  • What is a minority shareholder?
  • Action a minority shareholder can take
  • Protection of members against unfair prejudice
  • Examples of successful unfair prejudice claims
  • Powers of the court when a successful application is made
  • Power of the court to make an order for the purchase of shares
  • Action following a court order
  • Derivative claims
  • Basis for a derivative claim
  • More...

A minority shareholder in a company does not have much power to influence its management and, therefore, sometimes their interests are disregarded. Should they need to protect their position, a minority shareholder can do so in a number of ways, eg they may bring an unfair prejudice claim, pursue a derivative action or seek a winding-up petition.

What is a minority shareholder?

There is no definition of a minority shareholder in the Companies Act 2006 (CA 2006). Minority shareholders are usually persons who hold less than 50% of the shares in a company that have voting rights attached, meaning that they cannot block ordinary resolutions. Shareholders with less than 25% of the shares will also not be able to block special resolutions.

Action a minority shareholder can take

The two most common claims brought by minority shareholders to protect their interests are:

  1. a claim that they have been unfairly prejudiced by the way the affairs of the company are being conducted, and

  2. a derivative claim under the CA 2006

Shareholders can also:

  1. petition the court for a winding up of a company under section 122(1)(g) of the Insolvency Act 1986 on the basis that it is just and equitable that the company is wound up, or

  2. bring a claim against a director in their personal capacity, rather than as a director, where there are grounds to do so

This Practice

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