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Common Areas of Shareholder Disputes

Shareholders' Common Areas of Dispute

Shareholders - Common Areas of Dispute

Issue of New Shares:

Shareholders in private companies will wish to ensure that their proportion of the issued capital in the company, and hence the degree of their control over the company's affairs, is not diluted by the issue of new shares. The Board normally has the power to issue and price new shares.

The Companies Act 2006 gives existing shareholders pre-emption rights (the right of first refusal) before new shares are issued, with some exceptions.  A company's Articles of Association can vary or exclude these pre-emption rights.  The pre-emption rights can also be disapplied where a private company has only one calss of shares, or when the directors are acting under a general authority to allot shares or the shareholders pass a special resolution.

Transfer of Existing Shares:

Shareholders will also usually want to prevent other shareholders selling their existing shares to third parties before they themselves have been offered the shares and the Articles of Association or a shareholders' agreement can provide them with this right.

Procedural Disputes:

Procedural rules at shareholders' meetings are stricter than for Board meetings, the formal requirements are more precise and failure to comply renders the proceedings invalid. In a dispute, where the status of the meetings and resolutions is in question, the procedures adopted at the meeting are likely to be closely scrutinised by dissenters.

Common complaints include:

  • inadequate notice to the shareholders;
  • incorrect wording of shareholders' resolutions;
  • late or incomplete shareholder proxies;
  • undue restriction of discussion by the chairman of the meeting;
  • and shareholders voting where they may have conflicts of interest.
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