Often in small and medium-sized businesses, a company’s directors and shareholders are the same people. However, this is not always the case and it is not uncommon for directors who have left to retain their shareholding.
Shareholders, as opposed to directors, have very limited rights when it comes to having a say in how a company is run.
The general principle is that a company is owned by its shareholders but run by its directors. This means that the directors, and not the shareholders, have the power to control the company, deal with its customers and suppliers, and are responsible for dealing with various laws and regulations.
But shareholders do have some powers. Some of these come from the Companies Act and some from the company’s constitution. So, if you’re a shareholder and wondering what powers you have, you must first look at the company’s Articles, Shareholders’ Agreement and any Special Resolutions that may have been passed.
A quick summary of the main rights and duties of shareholders, and what they cannot do, is as follows.
- Have no rights to profits (unless a dividend has been declared or a company wound up);
- Have no rights to a company’s assets;
- Cannot be held liable for any wrong-doing by the company or its directors;
- Owe no duties of care to the company or each other;
- Are not entitled to represent the company, take any action on behalf of the company, or deal with anyone or enter into contracts on behalf of the company;
- Have a right to payment of any dividend declared;
- Have a right to vote at general meetings of shareholders;
- Have a right to call an EGM if they hold at least 10% of the shareholding;
- Have a right to put forward a resolution to an AGM if they hold at least 5% of the shareholding;
- Have a right to remove a director if they hold more than 50% of the shareholding as long as the correct procedures are followed first;
- If the Articles say so (and they usually do), have the right to direct the board to take, or not take, a specified action if they hold at least 75% of the shareholding.
Certain other matters must be agreed or approved by the shareholders such as:
- Changing the company’s Articles;
- Declaring a dividend;
- Putting the company into liquidation;
- Appointing or changing an auditor;
- Approving of certain actions of the directors that would otherwise be unlawful;
- Increasing the share capital; and
- In some circumstances, approving a director’s service contract.
In certain circumstances, shareholders can go to court if they disagree with the way a company is being run:
- If a company has a legal claim against a director but doesn’t take any action, a shareholder may be able to apply to the court for permission to take action in the name of the company (called ‘derivative proceedings’);
- If the way a company is being run is unfairly prejudicial to a shareholder, then the shareholder may be able to issue ‘unfair prejudice’ proceedings.
Are you a shareholder who could do with some advice on what you can and cannot do, or whether you can take any action against a company? Or are you a director who is not sure how to deal with a troublesome shareholder? If so, please get in touch to see if we can help.
Business Solicitor Birmingham