Understanding shareholder rights in the UK

Minority shareholders

Minority shareholders typically hold less than 50% of a company’s shares. They have specific statutory rights based on their percentage holding of shares. For instance, those holding at least:

• 5% of the voting share capital can require directors to call a general meeting and require the circulation of a written resolution to shareholders (the percentage can be lowered by the Articles);
• 10% can prevent a meeting being held on short notice;
• 15% can apply to the court to cancel a variation of class rights, provided shareholders did not consent to, or vote in favour of, the variation; and
• 25% can block the passing of special resolutions.

Minority shareholders can also seek legal recourse if they believe their rights and interests are being unfairly prejudiced by majority shareholders.

Majority shareholders

Majority shareholders hold more than 50% of a company’s shares, giving them significant control over a company’s decisions. They:

• can pass ordinary resolutions (over 50% shareholding) and special resolutions (over 75% shareholding) to make significant changes, such as amending the Articles or winding up the company;
• have the power to appoint and remove directors, influencing the company’s management;
• have the power to block ordinary resolutions in a general meeting, covering matters such as authorising the directors to allot shares, and ratifying acts of directors; and
• can approve the payment of dividends to shareholders.

Given the above, companies where ownership is split equally between shareholders present a unique set of challenges as a difference in opinion could lead to a deadlock situation where no decision can be made. In such circumstances, it is particularly important to enter into an SHA which contains provisions setting out how any deadlock is to be resolved. You can read more about SHAs here.

All shareholders

All shareholders, regardless of their percentage holding of shares, have certain rights under the CA06, such as:

• The right to vote at a meeting in person or by electronic means. The weight of their vote depends on the number of shares they hold in the company.
• Rights of pre-emption on an issue of any additional shares in the share capital of the company.
• The right to access various documents and information about the company to ensure transparency and accountability, which includes:
  • annual accounts and reports: shareholders can inspect and receive copies of the company’s annual accounts and reports;
  • minutes of general meetings: they can inspect the minutes of general meetings and request copies for a fee;
  • register of members: shareholders can inspect the register of members and obtain copies, unless a court decides the request is for an improper purpose; and
  • directors’ service contracts: they have the right to inspect directors’ service contracts and request copies for a fee.
• A right to receive dividends, if declared by the company.
• Upon dissolution of a company, shareholders have the right to a return of capital after all debts and liabilities have been settled.

It’s important to note that certain rights can be limited, modified or waived by agreement with the company and/or any other shareholders of the company, and any additional non-statutory personal rights a shareholder may have would be set out in an SHA or the Articles, which are subject to negotiation.

Comment

Understanding the rights and considerations for different types of shareholders is essential for effective corporate governance and protecting shareholder interests. Minority shareholders need to be aware of protections available to them and avenues for recourse; majority shareholders must understand their significant influence and the responsibilities that come with this, and 50/50 shareholders should have clear agreements in place to manage potential deadlocks.

Contact our Corporate & Commercial team if you  have a question regarding  existing Articles or SHA.