If you are a shareholder in a private company, we understand that navigating decision making and disputes can be challenging. It may be unclear as to who is responsible for making such a decision or whether the board or the shareholders have the final say. In this article, we answer some of the most common questions concerning shareholder decision making and problems with the Board of Directors.
While the day-to-day business of the company is typically left to directors, more important decisions require the input of the shareholders. Shareholders make decisions about the company by passing resolutions. Your company articles of association, or any shareholders agreement, will set out what type of resolution is required for certain matters – an ‘ordinary resolution’ or a ‘special resolution’. An ordinary resolution will require the approval of the majority (more than 50%), with a special resolution requiring 75% approval.
In order to pass a resolution, you can choose the written resolution process or the general meeting process.
A written resolution is typically quicker and more straightforward. All shareholders eligible to vote will normally have one vote for each share they hold (this may differ depending on whether there are different classes of shares).
When you decide to pass a resolution by general meeting, only the votes of the shareholders present at the meeting will be counted, but there is a prescribed process that must be followed.
Whether shareholders can overrule a decision of the board of directors will depend on the circumstances. Generally, where the board of directors is granted the power to make a decision under the company’s articles of association, the shareholders do not have the power to overrule the decision right away. However, they may be able to take another form of action.
The model articles of association adopted by many start-ups and SMEs, set out that the board of directors has responsibility and authority to make decisions about the day-to-day running of the company. There are only a few specific matters which must be referred for shareholder approval including changing the articles of association or share capital.
If the shareholders decide to take action against the directors, the board’s decision will stand until the matter is resolved.
If you suspect that a dispute may arise between the shareholders and the board, we would recommend seeking specialist legal advice at the earliest possible stage.
Disputes between shareholders and directors are common, but there are several actions shareholders may be able to take.
Shareholders holding at least 5% of the company’s voting capital may serve a ‘request’ on the company requiring the board to call a shareholders’ meeting. If the board does not call a general meeting following a request from the shareholders, the shareholders have the right to call a meeting.
At the shareholders meeting, the shareholders may take steps to dismiss a director or appoint any new directors to the board. They may also pass a resolution which limits the decision making powers of the board of directors.
Alternatively, it is possible for the shareholders to take legal action against directors where they believe the directors are acting improperly.
Shareholders who are unhappy with the decisions of the board, but do not hold more than 50% of the voting rights, may need to consider their actions more carefully. Minority shareholders are unlikely to pass a resolution as they do not have the voting power to do so. However, there are protections for minority shareholders which allow them to take action if they feel they are suffering unfair prejudice.
Our team of dispute resolution lawyers are skilled negotiators who regularly work alongside shareholders and directors to find commercially sensible solutions to a range of problems, from alleged misconduct by board members to claims of unfair prejudice made by members with a minority shareholding. For more information, please contact Olexandr Kyrychenko on 0330 107 0106. Alternatively, you can make an appointment to see a member of our team at one of our offices in London, Birmingham or Manchester.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Talk to us today 
0330 107 0106
CONTACT US TODAY
