Im a director and a minority shareholder what happens if the majority shareholder wants me out?
In this article we discuss what happens if two shareholders are in dispute where one is a minority shareholder. What rights does the minority shareholder have, and what if anything can you do?
Sometimes it is necessary to remove a director from a company if a dispute arises. This is where the Company`s Articles of Association would be used, they would be used to confirm the procedure of how disputes are handles. If the Company`s Articles of Association do not provide a solution, the next solution is to understand section 994 of the Companies Act 2006.
This is a very important statute and this states:
A member of a company may apply to the court by petition for an order under this Part on the grounds that
(a) The company`s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) An actual proposed act or omission of the company (include an act or omission on its behalf) is or would be so prejudicial
The idea behind this is to protect minority shareholder, this means shareholders with less than 50% of the shareholding in a situation where the majority shareholder seeks to act in a manner that is unfair to the minority share holder, such as removing them as a director. This statue gives the minority shareholder some power in the court if they feel they have been unfairly treated. In such circumstances a majority shareholder could try to damage the company which could result in a reduction of the value of the share.
The minority shareholder would have to have a good case to show that the majority shareholder was actively trying to damage the business in order to reduce the value of the shares, simply stating the business is being badly run would not be enough. Credible proof would be needed and it could be a lengthy process.
If you are in this position and need more advice, Your Virtual Office London provide company support and advice. We are happy to help you, we offer free and impartial advice and have a vast amount of experience behind us. Our team have been forming companies since 1971 and are on hand to help provide you with the knowledge you need in order make sure your company makes the right choice.