Shareholder rights

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The key for any shareholder facing a problem or potential dispute is to understand shareholder rights and remedies available to deal with that particular issue but more importantly, to make sure that they choose the strategy most appropriate for them and most likely to achieve their objective.

“I have found FWJ to be perceptive, to the point and realistic. They have been able to assimilate and forcefully defend a very aggressive claim with very limited historic information.”

A client we advised on a complicated property and partnership dispute

Shareholder rights in the UK, how we help

The areas that we can provide advice on include the following:

Managing a proper structured exit from the company

It might just be that as shareholder, you want to cash in the value of your shares and exit the company rather than remain within it. It may be that an offer has been made for your shares and you need advice surrounding whether the offer is reasonable. For example, because a substantial minority shareholder discount has been applied to the offer.

We commonly assist clients with a structured exit of a company, ensuring proper market valuation of shares, proper assessment of the correct level for a minority shareholder discount and dealing with any other aspects which might arise, including any tax related or other matters. We ensure that clients get what is owed to them and their rights as a shareholder are fully protected during the exit process. We work with valuers and accountants regularly and can assist to navigate this process. We do so understanding a company’s constitution and understanding what you can do to ensure a fair financial return on your investment.

Removal of directors by shareholders

We are often asked by shareholders whether they have the power to remove a director who is incompetent, mismanaging the business, setting up a competing business or even involved in fraud or unauthorised removal of assets.

It is possible for shareholders to remove directors. Whether this is possible will depend on how the company’s articles of association are drafted, whether there is a shareholders agreement and what is included in the same and the nature of the directors conduct. Our team are familiar with directors’ common law and statutory duties and will advise whether a director’s conduct is such that his or her removal by shareholders, is possible. .

Our expert team can help advise you whether this is an option available to you and where it is not, what else you might be able to do to protect your position.

Shareholder powers to control management

We often advise shareholders on their ability to control the management of the business.

Again, these powers can vary depending on a number of factors such as the existence and drafting of a shareholder agreement, size and makeup of the business and roles and responsibilities of the various directors.

Unfair prejudice claims

Where a shareholder is unable to address serious concerns as to the conduct of other shareholders or owner managers via the company’s own constitution or corporate governance structure, they may be able to turn to various unfair prejudice remedies.

These remedies are wide ranging. Court intervention can include:

• a derivative claim
• injunctive relief
• court orders to ensure a structured buy out
• or even the ultimate threat of issuing a section 994 winding up petition to end the life of the company

There are also ways of resolving these disputes outside the court arena through formal or informal negotiation or mediation.

Whatever the situation, our team is able to make use of the various unfair prejudice remedies to help protect shareholders against prejudicial action which affects their position and the value of their shares.

Winding up petitions under Section 994 Companies Act 2006

Ultimately, if issues of deadlock or unfair prejudice cannot be resolved, there is always the ability to issue a winding up petition under Section 994. However, this is very much the nuclear remedy of shareholder dispute resolution but is something which can be used to try and facilitate a settlement.

Our experienced team have dealt with numerous 994 petitions (either for the petitioner or for the company) and have the team of experts to help you with these.

Derivative claim under Section 260 Companies Act 2006

If a director is breaching his/her fiduciary or other duties, normally a claim would be brought against them by the company itself.  However, this might not happen if the wrongdoers are the majority shareholders or only directors.

• in these circumstances, it is possible for an affected shareholder to apply to court to commence a derivative claim – to bring an action against the director in the absence of the company making that claim
• whilst the minority shareholder brings the claim, the relief sought is on behalf of the company as a whole

These types of claim can be complex.  Our expert team has helped advise many shareholders (often minority shareholders) use this remedy to help protect their position and the value of their shares.

Enforcement of pre-emption shareholder rights

Pre-emption rights can be hugely important to existing shareholders. It gives them the right to purchase shares from another shareholder before they are offered to a third party.  They help ensure that the remaining shareholders can retain a degree of control in a company – which is especially important in smaller sized businesses.

Making sure that pre-emption rights are respected and enforced is something our team specialises in.

Negotiation / mediation and alternative dispute resolution

We recognise that people rarely want to be embroiled in formal legal proceedings if they can be avoided.

Whatever the dispute, we always consider from the outset of the case whether and how informal or formal negotiated settlement can be reached. Our team has successfully resolved many disputes this way – reminding the other side of the remedies our client has available and making it clear that a negotiated settlement is in the interest of all parties concerned.

Whilst we can never guarantee that a dispute will not require Court resolution, our decades’ of combined experience settling litigation claims at an early stage gives our clients the best chance of an early settlement and the ability to move on with their lives.

Are you a majority or minority shareholder in need?

At Francis Wilks & Jones we cannot manage all risks that you and your business may face, but we are very experienced in the most common shareholder related issues, how to protect against them and how to resolve them before matters escalate to court proceedings or even business failure. 

No matter whether you’re a majority or minority shareholder, we’ll help you understand your rights and remedies. Call us today and take your first step forward.