Understanding your shareholder rights
Shareholders have a vested interest in the success of a company, but they also have some responsibilities, including voting rights.
In this blog, our commercial litigation solicitors explain what your rights are as a shareholder.
Who can be a shareholder?
A shareholder can be a person, company or organisation that holds stock(s). They must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner.
Shareholders typically declare dividends if the company does well and succeeds.
What are a shareholder’s rights?
Depending on their level of shareholding, shareholders have the right to:
- Vote on certain matters concerning the company
- To be elected to a seat on the board of directors
- Vote on the appointment of directors
- Set director salaries
- Authorise an allotment or portion of shares to be given out
- Contribute to a company’s debts (up to the limit of their own liability)
Shareholders do not take an active role in the running of the company; this is a director’s responsibility. However, a shareholder can also be a director.
Types of shareholders
There are two types of shareholders:
- Majority shareholders
- Minor shareholders
- A majority shareholder owns 50% or more of the shares in a company. They will generally govern the running of the business and can prevent a minority shareholder from making decisions.
- Minority shareholders own 50% or less of the company’s shares. Their main interest is to be informed about the organisation’s decisions, but they can also have some level of influence over decision-making.
How shareholder interest is determined
A shareholder’s interest is generally defined by the type of share they hold, any Articles of Association and/or a shareholders’ agreement.
Shares can either increase or decrease in value, depending on how the business is doing.
Shareholder disputes
Shareholder disputes can arise when there is a conflict between a company’s owner/s and a shareholder over management, finances, strategy, or breaches of agreements. These disputes often involve minority shareholders who feel they have been excluded from decision-making and/or playing their part in running the business, or denied dividends.
Minority shareholder disputes often lead to unfair prejudice claims. If you are a minority shareholder and are being prevented from running the business, you may be able to apply to the court for an appropriate order as part of an unfair prejudice claim. Read more about unfair prejudice claims here.
Shareholders’ agreements
A shareholders’ agreement governs the relationship between shareholders and business owners. It includes how they manage the business and how shares in the company may be bought or sold.
Drafting this type of document without legal input is risky, as our Corporate and Commercial team highlights in this case study about a client who used AI to draft a shareholders’ agreement. Click here to read more about shareholders’ agreements.
Legal advice for shareholders
Our specialist commercial litigation lawyers can help with:
- Advice on director and shareholder disagreements
- Assessing the merits of an unfair prejudice claim
- Negotiation and settlement strategies
- Representing clients in court proceedings when disputes cannot be resolved
For straightforward advice on shareholder rights, contact our commercial disputes solicitors on 0117 325 2929 or complete our online enquiry form.
