Directors, not shareholders, are in charge of the day-to-day running of a limited company. But if you’re a company shareholder, what rights do you have as the owner (or part-owner) of the business?
In this post, we look at your shareholder rights and the extra rights that come with having a certain percentage of shares in a company. Let’s get started.
The rights of all shareholders
A shareholder with any amount of ‘ordinary’ shares (the most common type of shares) will be able to:
Attend any general meetings – Shareholders should be made aware of any general meetings that are taking place. If the shareholder is unable to attend, they can appoint someone as their proxy to act on their behalf at the meeting.
Vote – Shareholders can exert their power by voting on certain issues. This can be a vote on a written resolution or a vote at a general meeting by a show of hands or a poll. If a vote is being done via a written resolution or poll, the number of shares held directly impacts the number of votes that the shareholder gets.
Get a share certificate – A shareholder should receive a share certificate no later than 2 months after the share(s) is allotted.
Inspect company and director information – This includes looking into the company’s register of members and directors’ service contracts. Shareholders should also be sent a copy of the annual accounts as and when they are filed.
Make a claim against a director – If a shareholder believes that a company director has demonstrated negligence or a breach of duty, they can bring a ‘derivative claim’ against that director.
What rights do minority shareholders have?
A minority shareholder is someone who holds less than 50% of the shares in the company. If two or more shareholders ‘team-up’ and their combined number of shares reaches the percentage required, they too have the right to carry out the below action.
A minority shareholder can:
Call a general meeting (at least 5% of shares required) – If a shareholder has enough shares, they have the ability to request the organisation of a general meeting.
Propose a written resolution (at least 5% of shares required) – A written resolution is a resolution that can be passed in writing rather than at a general meeting. The written resolution can be a special or ordinary resolution (more on these shortly).
Call for an audit or poll (at least 10% of shares required) – A shareholder can force an audit in regard to a company’s accounts or demand a poll in regard to a proposed resolution.
Stop short-notice meetings (more than 10% of shares required) – General meetings that have been arranged with a short notice period (14 days’ notice should be given for a private limited company) can be stopped by a shareholder.
Stop squeeze-outs (more than 10% of shares required) – As defined by legislation.gov.uk, a squeeze-out ‘enable[s] a successful bidder to compulsorily purchase the shares of remaining minority shareholders who have not accepted the bid.’ A shareholder with enough shares has the ability to stop this.
What rights do majority shareholders have?
A majority shareholder is typically someone who holds more than 50% of the shares in the company. Again, if two or more shareholders ‘team-up’ and their combined number of shares reaches the percentage required, they too have the right to carry out the below action.
A majority shareholder can:
Pass ordinary resolutions (more than 50% of shares required) – An ordinary resolution is usually used in situations relating to dividends, shares, and appointing and removing directors. A shareholder with enough shares has the ability to put an ordinary resolution through.
Pass special resolutions (at least 75% of shares required) – A special resolution is used for sensitive matters such as changing the company’s articles of association, or to wind-up the company. A shareholder with enough shares has the right to put a special resolution through.
The Companies Act 2006 and your articles of association
Your rights as a shareholder are defined by the Companies Act 2006. However, it’s also important to consult your company’s articles of association to check if the shareholder rights have been modified (this is permitted).
The articles of association is a publicly available document that outline how a company should be managed. The majority of UK private companies are formed with model articles, but some business owners choose to amend these (this can be done before or after a company has been formed).
If you don’t recall if your articles of association have been changed or not, you can complete a quick check using the Companies House search the register tool (to find this information you will need to view your company’s ‘filing history’ tab).
Check the shareholders’ agreement (if you have one)
The shareholders’ agreement is a legally binding document that exists between a company’s shareholders. Unlike the articles of association, there is no legal requirement to have a shareholders’ agreement in place.
However, if you do, check it over to ensure there are no particular clauses in regard to your shareholder rights.
Does it matter what type of shares I have?
Yes. Different share types come with caveats in regard to what can and can’t be done by the shareholder. For example, if someone is issued ‘non-voting shares’, they don’t get to vote on resolutions.
For simplicity’s sake, everything covered in this post was written for a shareholder (and company) where only ‘ordinary’ shares had been issued. This is the most common scenario for a private limited company.
You can check the type of shares you hold on your share certificate or the register of members.
Must directors do what shareholders tell them?
The simple answer (and admittedly frustrating answer) is yes and no.
The directors are there to work for the benefit of the company (the shareholders). Indeed, this is one of the duties of a director.
Shareholders can direct directors to do something, or refrain from something. However, directors do have a duty to exercise independent judgement.
Directors may not be able to fulfill their various duties if they don’t think for themselves.
But ultimately, if a director is frustrating the wishes of a shareholder, and the shareholder holds more than 50% of the shares in the company (or is working with other shareholders to get over 50%), they do have the power to remove the director.
So there you have it, you should now know your shareholder rights
We hope you have found this post helpful. If you have any questions about your shareholder rights or anything else related to limited companies, please don’t hesitate to get in touch via a comment.
