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Shareholders must check their rights in company disputes

View profile for Samuel Pedley
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Shareholders who do not own a controlling stake in a business should check their rights in the event of disputes with fellow directors and other stakeholders.

This is an often-overlooked issue I discussed in the media recently as I am seeing that too many minority shareholders believe they must sit on their hands and just accept decisions they think are wrong being forced through by those with the biggest stake in a business.

Shareholders should not just live with the consequences, particularly as it could result in them losing out financially.

How much of a say you have in the direction of a business depends largely on what proportion of the shares you own. However, some minority shareholders may have more power than they think.

Some shareholder agreements grant rights of veto on certain actions, such as selling particular assets or making strategy decisions. There is also the right to raise an unfair prejudice petition if the company’s affairs haven’t been conducted in a fair way, or if the directors are paying themselves far too much money.

Shareholders also have powers to wind up the company although that really is very much the last resort and they would need strong evidence to show they had been frozen out.

These are just some brief examples and overall, shareholders should seek legal advice about the rights they have under their agreements if they think the majority shareholders or directors are doing the wrong thing.

There are protections and a variety of tools available to address these issues but too many minority shareholders don’t know about them and end up just cutting their losses. I see it too often and it doesn’t have to be that way.

Sam Pedley is an award-winning solicitor who is recognised in the Legal 500 and Chambers and Partners guide. Business owners and shareholders can contact him through