Commercial Law

Shareholder’s Rights & Remedies

When you invest in a company as a shareholder, you effectively become one of the owners of the business. You get certain rights as a shareholder. This could include perks such as invitations to shareholder meetings, voting on certain issues to influence the direction of the company, or you could even receive dividends.

Whatever your plans for future opportunities and benefits, it is important to have a robust shareholders agreement in place before you buy into a company. 

What is a shareholder agreement?

Without a shareholder agreement in place, a minority shareholder (one owning less than 50% of the shares) will typically have little control or say in the running of that company.

An agreement can help to remove a lot of room for argument between shareholders as well as protect your personal rights, for example, it could ensure you receive the same return on their investment as the other shareholders.

What should be included in a shareholder agreement?

  • The rights attaching to various classes of shares
  • The voting process for key decisions
  • Directorship of the company
  • Responsibility for preparing company reports/budgets/plans and any auditing process
  • What each shareholder will contribute to the company
  • How shares are to be paid
  • How dividends are to be issued
  • The rules governing the company shareholding,
  • Processes for transferring existing shares or issuing additional shares
  • How new shareholders can subscribe
  • How assets are to be held by the company
  • The purpose and scope of the business to be conducted by the company
  • The expectations of each shareholder
  • Any confidentiality obligations
  • Any restraint of trade terms to apply to shareholders
  • Company policies
  • Dispute resolution clauses
  • A clearly defined process for shareholders to enter and exit

What forms of relief or remedies are available to you?

An oppression remedy is one of the most important remedies that a member of a company has against a company. It is a broad provision which protect shareholders from commercially unfair conduct carried out in the company or the people that control that particular company. However, it means that something more than just a dissatisfied shareholder is required to establish a claim.

The courts could choose to make the following orders following an oppression:

  • The company is wound up
  • The company’s constitution is modified or repealed
  • The company’s future conduct is regulated
  • Defining the value of a person’s shares and deciding their shares be purchased and the company’s share capital be reduced
  • The company or someone on the company’s behalf, institute, prosecute, discontinue or defend proceedings
  • Appoint a receiver or a receiver and manager to any or all of the company’s property
  • Restrain a person from engaging in specified conduct

What next?

Whether you are a minority or majority shareholder in a company, it is important for you to seek professional advice early and often. It’s up to you to take proactive steps to resolve shareholder disputes as and when they may arise.

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