Protecting Minority Shareholders

We will make you aware of – and protect – your rights as a minority shareholder.

There are mechanisms to protect minority shareholders in disputes, but there are strict criteria, so you need to know how they work to make informed decisions.

If a dispute arises between shareholders, the key factors that can decide the outcome are the articles of association and section 994 of the Companies Act. The most relevant part of this provision states…

‘A member of a company may apply to the court... for an order... on the ground that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of its members generally or of some part of its members...'

You may have trouble understanding the very legalistic manner of this provision – many lawyers do – but basically it seeks to protect minority shareholders from wrongdoing, so it’s key that you understand it.

The provision protects those with a shareholding in a company of 50% or less, in situations where the controlling stakeholders seek to act in a way which is 'unfairly prejudicial' to their interests.

In general terms, section 994 allows minority shareholders a ‘right to complain’ to the court if majority shareholders run the company in a way that damages their position or the value of their shareholding, something that is often done deliberately by misapplying or misusing Company assets.

You should know that a complaint of ‘unfairly prejudicial’ behaviour cannot be vague (e.g. 'they're managing the business badly') or trivial (e.g. ‘the accounts were sent to me one day late’).

It must stand up to objective analysis. Examples of 'unfairly prejudicial' conduct might be using company assets or money for the personal benefit of a shareholder or the majority shareholders paying themselves far more than people in their position could objectively justify.

We go the extra mile to ensure you have the legal knowledge you need to navigate these issues.