Shareholder Voting Powers

If you are investing in a private company or are already a shareholder in a private company, your main concern will be to protect the value of your shareholding and avoid costly shareholder disputes and employment disputes with directors.   Various decisions for example the issue of new shares can dilute the value of your shareholding even if you disagree with the decision and voted against the company resolution.  The Companies Act prescribes the actions which can be taken providing the company has requisite shareholder approval split between   a special resolution requiring the approval of at least 75% of shareholders eligible to vote and an ordinary resolution requiring the approval of more than 50% of shareholders eligible to vote.  We have summarised below some of the more common resolutions taken by privately funded companies and marked up whether the resolution required is a special or ordinary resolution. 

It is possible to alter the provisions of the Companies Act to build in greater protection for investors, small and minority shareholders, founders and other categories of shareholder.   If special provisions have not been provided for in the company articles or company shareholder agreement the provisions of the Companies Act (set out below) will apply.   

It is worth reviewing the articles and or shareholders agreement because shareholder disputes and employment disputes with directors often arise in relation to a company’s decision making.  Minority shareholders do have various rights under UK company law, such as the right not to be treated unfairly but such claims are often difficult to prove in practice and involve costly litigation in the High Court.  The procedures for the appointment and removal of directors will need to be reviewed in connection with the director’s employment contract and is an area where employment disputes commonly arise and compromise agreements are not uncommon.

Click here to read our Checklist – Articles of Association and Shareholders Agreements.

Please note: The points in this article are to highlight some of the issues that shareholders must address in relation to their voting powers. It is not intended to be comprehensive or to be a detailed outline of all matters to be taken into account, and it should not be acted upon without first taking specific legal advice.