Minority Shareholders - A Practical Guide to Their Rights

Whether the other side is offering to buy you out, the Court orders the purchase of your shares or you anyway just “want out”, the key question is how much your shares are worth? The answer depends infinitely on the particular facts and for this reason it is not possible to make more than general observations.

A. What should shareholders do if they believe that they have been treated unfairly?

The first step that should be taken by any aggrieved shareholder is to collate all shareholder agreements and other documents (such as emails or meeting notes) which record what the shareholders may have agreed or discussed about how the Company should be run. It is important to preserve all potentially relevant documentation, including electronic records. Those documents, together with the Company’s formal Memorandum and Articles of Association are likely to contain significant provisions about how the Company should be run and/or about dispute resolution. Usually it then makes sense to prepare a chronology of key events so that important details are not overlooked when legal advice is being obtained about how to resolve the dispute.

B. What types of claim can an aggrieved shareholder bring?

An aggrieved minority shareholder may be able to bring various different types of claim including:

  1. A claim for breach of contract;
  2. A claim for the Winding Up of the Company on “just and equitable” grounds;
  3. An Unfair Prejudice Petition;
  4. A Derivative Claim on behalf of the Company.

1. Contractual Claims

Often, when companies are established, the founding shareholders enter into professionally drafted Shareholders’ Agreements. Less frequently, such agreements are entered into at a later stage, such as when a new shareholder acquires shares or a significant investment is made. Shareholders’ Agreements are subject to ordinary contractual principles so, subject to any subsequent variation or waiver, their terms are usually enforceable. Breach of a Shareholders’ Agreement can give rise to awards of damages and to injunctive relief, which is an application to court seeking an order to prevent or put right a wrongdoing.

However, it is important to recognise that contractual claims can arise without any formal written agreement. The existence of an informal agreement, such as one arising out of a conversation may be hard to prove but, if proven, can be enforced just like any other contract.

IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.

ALTERNATIVELY, CONTACT THE SHAREHOLDER TEAM ON 020 7841 0390.

2. Winding Up on “Just and Equitable” Grounds

3. Unfair Prejudice

4. Derivative Claims

Disputes concerning the rights of minority shareholders are a specialist area of the law. There are different Court procedures to be followed for the different types of claim. Any shareholder considering bringing a claim, and any shareholder who may be facing a claim should seek specialist advice in order to understand and best remedy any prejudice that has been suffered.

At FWJ we have the expertise to assist minority shareholders understand and enforce their entitlements within their business.

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.