23 June 2017 by

Shareholders v Directors – who wins?

Generally it is the shareholders that hold the power in the company with the directors being responsible for its day to day running.

In most successful companies the directors and shareholders work closely together and are open and transparent about the actions and direction the company will take. This is not always the case and we have experience of cases where costly and time consuming disputes between the company, its directors and shareholders can ultimately lead to the company being wound up. 

Disputes occur most frequently where shareholders disagree with the actions of the directors but what rights do shareholders have?

In general the main rights include:

  • to attend and vote at general meetings of the company;
  • to receive dividends if declared;
  • to circulate a written resolution and any supporting statements;
  • to require a general meeting of the shareholders be held; and
  • to receive the statutory accounts of the company

It is important to note that these rights may be further extended by way of a shareholders agreement (or even the articles of association).

Generally shareholders do not have rights to be involved in the day to day activities of the company (unless otherwise agreed in a shareholders agreement) this is the responsibility of the directors. In small to medium size companies where the shareholders and directors are the same people, there may be overlap between the roles but it is important to distinguish shareholder rights from director rights and duties.

Shareholders who hold a higher percentage of the shares in the company have even more power to take other types of action. Shareholders with over 25% of the shares will be able to block special resolutions (e.g. change of articles, change of name) and those with more than 50% will be able to block ordinary resolutions (e.g. winding up the company, remove a director from office).

In simple terms therefore the more shares you have or can command then the more you can influence and disrupt the directors actions.

So who does win? The shareholders tend to hold the ‘whip hand’ particularly if there is a single shareholder or a block of shareholders who command over 25% of the shares but disputes rarely favour either party.

Early action is the key to ensuring that any difficulties that the company or directors may face are dealt with swiftly so that do not become involved in disputes which may lead to the company’s downfall. We would also advise that you ensure your key legal documentation (including for example your Shareholders Agreement) is professionally written and clearly sets out, so far as it can, key responsibilities and what to do if opinions differ.

We at Bolt Burdon have vast experience in this area so if you are a company director or shareholder and wish to discuss any of these issues please contact one of our solicitors in the Corporate and Commercial team here.

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