What are Minority Shareholder Rights?

Minority shareholders have considerable rights and protections- especially to avoid unfair prejudice or unlawful conduct impacting their position where another majority shareholder takes decisions or steps that treat the minority unfairly in comparison to the majority. 

As a starting point voting percentages and ‘control’ of a company are determined by the percentage of issued shares with voting rights as below. This is confirmed within Companies Act 2006. Voting powers and rights are broadly reflected:

• 5% or more allows the circulation of a written resolution, a request to the company to call a general meeting and the ability to prevent the re-appointment of an auditor;
• 10% shareholding can call a poll vote at a general meeting and request an audit;
• 10% or more can block consent to the short notice of a general meeting;
• 25% or more allows a block on a special resolution and the power to stop a compromise agreement with members;
• A shareholding of 50% empowers the shareholder to block ordinary resolutions;
• Greater than 50% allows a shareholder to pass an ordinary resolution;
• 75% shareholding allows passing a special resolution; and
• Greater than 90% allows consent to short notice of a general meeting and the right to buy out minority shareholders during a takeover.

The above are correct especially in circumstances where decisions are being made on the direction of the company and in simple terms the majority will rule. Equally however there are protections for minority shareholders and, for example, s994-996 Companies Act 2006 gives the court very wide discretion to make orders correcting ‘wrongs’ or conduct by the majority shareholders against minority shareholders. As an example a majority shareholder might, on percentage terms, be able to pass resolutions that X person be paid £Y amount. The minority shareholder might disagree. On a percentage basis the resolution might pass, but if say person X is the majority shareholder the impact of the resolution would be to divert profit from the minority shareholder. That might amount to unfair prejudice. In this way a majority shareholder needs to be cautious before taking steps that might amount to unfair prejudice on minority shareholders, even if on a shareholding percentage basis they can pass a resolution as above.

In smaller companies and especially owner run businesses incorporated as limited companies, the courts are also much more likely to recognise the reality on the ground of more complex relationships such as quasi partnerships, and may be more proactive in being prepared to interfere with the conduct even of a majority shareholder, if there is a suggestion of a disproportionate impact on a minority shareholder or quasi partner. 

Items such as the Articles of Association and content of any shareholders’ agreement will be important in further protecting and clarifying the rights of minority members shareholders.