HomeFWJ TakeawayClaims against directorsClaims by shareholdersShareholders’ ability to manage a company

Generally, shareholders do not have control over the day to day running of the company simply by being shareholders. But often the situation can blur between shareholders and directors - especially in smaller companies. Our team can help, whatever your situation.

A limited company is managed on a day to day basis by the directors, who make decisions regarding running the business and all that this entails.

The shareholders, also known as members, are investors in the company, owning a percentage of the company depending on the amount that they have invested, and the class of shares that they own.

Shareholders control over the company

Generally, shareholders do not have control over the day to day running of the company simply by being shareholders. Shareholders do not have access to the majority of company’s records. These sit with the directors. The shareholders’ only information comes from being provided with the annual accounts, unless the directors provide them with additional information voluntarily.

  • however, this can differ greatly, depending on the relationship between the directors and shareholders, and usually on the size and type of the company;
  • it is frequently the case in small and medium size companies that the shareholders are also directors;
  • if that is the case, then the shareholders will have far more day to day control of the company.

In some businesses, shareholders might also act as directors without themselves or the company recognising themselves as such. This is often seen in family businesses, where one of the family may be a founding member, retired as a director, but unable to keep away from the running of the business. Such shareholders need to be especially careful, as they will be considered to be directors and subject to all of the duties and personal ramifications for breach.

Shareholders powers

Shareholders’ interests are usually defined by the number of shares they hold, which reflects the percentage of the company they own. Shareholders can have some power over directors’ actions by the exercise of their voting rights in a shareholder’s meeting. To dictate the direction of the company, shareholders (jointly, or a majority shareholder) with more that 50% of the voting powers must vote in favour of taking action at a general meeting.

  • shareholders may be asked to vote on such issues as change of directors, amending the company’s constitution, the declaration of dividends and other potential structural alterations to the company;
  • shareholders also have the ability to remove directors.

Shareholders specific powers originate from the company’s documents of constitution, namely the Articles of Association and the Memorandum of Association. These will define the powers of shareholders and the powers of directors along with any legal obligations and duties found under company and other legislation.

A shareholders agreement may deal with issues that aren’t found in the Articles of Association.

Shareholders’ agreement

Shareholders may have additional powers to manage some aspects of the company if there is a shareholders’ agreement in place which gives additional rights.

A shareholders’ agreement is not obligatory, but it can be very useful to set out what happens in the care of shareholders’ disputes etc. It may also give powers of veto to shareholders, or a certain class of shareholder, for specific actions of the directors. However, if it is over-prescriptive, then it may stifle the directors’ abilities to run the company on a day to day basis. It is important if considering a shareholders agreement to take legal advice on the same.

Majority versus minority shareholders

To the extent that they can vote on certain issues, the level of control of any one shareholder will be dependent on the percentage shareholding they own. Majority shareholders will be able to potentially block decisions that require shareholders resolutions if they hold more than 50% of the shares. Those with majority interests generally have the power to control the company and its directors from within.

Shareholders with minority interests (50% or less) are subject to the power of the majority shareholders, in the absence of which there are other remedies available to minority shareholders. If a minority shareholder wishes to affect a particular resolution in a shareholder’s meeting, they should try to get the support of other shareholders so that those with more than 50% of the shareholding powers can act together.

At Francis Wilks & Jones our team of corporate experts have many years of experience in setting up a company, reviewing the needs of the company and the shareholders. If you would like to have a chat with one of our friendly team to discuss your company’s issues, then please contact us.

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