Central to corporate governance is the shareholders’ power over the activities of company directors. The Companies Act enshrines a limited number of rights and remedies for shareholders to utilise in order to promote accountability and transparency within the ranks of company board members.
In terms of routine governance, shareholders over a certain threshold retain the power to call company meetings, and shareholder approval is required for the appointment of company directors.
Where mismanagement of a company's affairs is alleged, even minority shareholders may bring legal action against the directors in order to obtain remedies, including injunctive relief. In the most serious cases, a shareholder may apply to a court to have a company wound up.
Can shareholders call a general meeting?
A shareholder may call for a general meeting of company management if they possess at least 5% of the company’s share capital and if the directors are first asked to call the meeting. In the event of a negative response from the company directors, the shareholders are entitled to call a general meeting by themselves.
What voting rights do shareholders possess?
Shareholder approval is required before certain company undertakings can move forward. Usually, shareholders’ voting rights are set out in the company’s Articles of Association.
A supermajority (or over half) of shareholder votes is required when a company seeks to alter its Articles of Association or trading name from what was initially filed at Companies House, switch company designation from public to private, alter pre-emptive rights and issue shares.
By comparison, an action to remove a director or auditor, approve a director service contract, elect chairmen, redenominate share capital currency or approve allotment of shares requires a shareholder majority vote.
Are directors liable for accounting to shareholders?
Subject to certain exceptions under the Companies Act, all accounts produced by a company’s directors must be subject to review by a shareholder-appointed auditor. Shareholders also possess a limited statutory right to inspect company accounts.
When can shareholders bring a claim?
Where company affairs are alleged to have been mismanaged or conducted in a manner prejudicial towards shareholders, such as misappropriation of funds, an unfair prejudice claim can be brought in court. A shareholder who raises an unfair prejudice claim can seek judicial remedies, such as ordering the company to buyout the aggrieved shareholder, or seek an award of injunctive relief against the contentious action.
In the alternative, a shareholder may bring a derivative action against the directors on behalf of the company. Derivative claims are made against the company’s directors by individual shareholders, acting on behalf of a company. Court approval is required in order for this type of action to move forward, and the shareholder must allege the directors have breached their legal duties.
As a last resort, a shareholder may bring an action to have the company wound up. This will only be granted by a court if considered just and equitable.
Contact our Specialist Corporate and Commercial Solicitors in Mayfair and throughout London
Lewis Nedas Law’s solicitors hold over 25 years of corporate litigation experience in a broad range of matters, including shareholder disputes and professional negligence claims. For more information on how our Corporate and Commercial Solicitors can help you, please call us 020 7387 2032 or complete our online enquiry form.