What Are Your Rights in a Shareholder Dispute?
Shareholder disputes commonly arise in private companies where relationships between owners deteriorate. They often concern control, dividend policy, access to information, dilution of shareholdings, or exclusion from management.
The rights available to a shareholder depend on the company’s constitutional documents, any shareholders’ agreement, and the statutory protections under the Companies Act 2006. Understanding how these sources interact is essential when assessing options.
The Starting Point: Articles and Shareholders’ Agreement
A company’s articles of association regulate its internal governance. They set out voting rights, decision-making thresholds, procedures for issuing shares, and rules governing director appointments and removals.
A shareholders’ agreement, if in place, often provides additional contractual protections. These may include reserved matters requiring unanimous consent, dividend policies, transfer restrictions, drag-along and tag-along provisions, and dispute resolution clauses.
In many disputes, the primary question is whether the conduct complained of breaches either the articles or the shareholders’ agreement. If it does, the aggrieved shareholder may have a straightforward contractual claim.
Where there is no written shareholders’ agreement, the analysis becomes more fact-specific and statutory remedies become more significant.
Access to Information
A shareholder’s statutory right to information is limited. Shareholders are entitled to receive annual accounts and certain company filings, but they do not have a general right to inspect all company records.
If a shareholder is also a director, broader rights of access arise in that capacity. If excluded from the board, those rights fall away. Disputes frequently emerge where a minority shareholder alleges that the majority is withholding financial information or operating without transparency.
In such cases, the court will consider whether the conduct amounts to a breach of duty, a breach of agreement, or forms part of a wider pattern of unfairly prejudicial conduct.
Unfair Prejudice Petitions
One of the principal statutory remedies is found under section 994 of the Companies Act 2006. A shareholder may petition the court on the basis that the company’s affairs are being conducted in a manner that is unfairly prejudicial to their interests.
Unfair prejudice commonly includes:
exclusion from management in quasi-partnership companies;
diversion of business opportunities;
excessive director remuneration coupled with suppression of dividends;
dilution of shareholdings without proper justification;
failure to comply with agreed governance arrangements.
The court has wide discretion in granting relief. The most common remedy is an order requiring the majority to purchase the minority’s shares at a fair value. The valuation methodology is often heavily contested and can be commercially decisive.
Unfair prejudice proceedings are fact-sensitive and document-driven. The history of the relationship between the shareholders is frequently central to the outcome.
Derivative Claims
Where the complaint concerns wrongdoing against the company itself — for example breach of directors’ duties — the proper claimant is usually the company. In limited circumstances, a shareholder may bring a derivative claim on behalf of the company under Part 11 of the Companies Act 2006.
Derivative claims typically arise where directors are alleged to have breached duties owed under sections 171 to 177 of the Act, including duties to act within powers, promote the success of the company, and avoid conflicts of interest.
Court permission is required to continue a derivative claim. This procedural hurdle means such claims are less common than unfair prejudice petitions.
Just and Equitable Winding Up
In serious breakdown situations, a shareholder may seek a winding-up order on the “just and equitable” ground under section 122(1)(g) of the Insolvency Act 1986.
This remedy is generally considered a last resort. The court will examine whether there has been a fundamental breakdown of trust and confidence, particularly in companies operating as quasi-partnerships. However, where an alternative remedy such as unfair prejudice is available, the court may refuse to wind up the company.
Directors’ Duties and Fiduciary Obligations
Where majority shareholders are also directors, their conduct is subject to statutory and fiduciary duties. A director must act in good faith, for proper purposes, and in a way they consider most likely to promote the success of the company.
If decisions are taken primarily to disadvantage a minority shareholder — for example issuing shares to dilute a holding without proper commercial rationale — the court may scrutinise whether the power was exercised for an improper purpose.
The overlap between shareholder disputes and directors’ duties is often central to litigation strategy.
Practical Considerations
Before commencing proceedings, shareholders should consider:
the commercial objective, whether exit, restoration of management rights, or financial compensation;
the likely cost and duration of litigation;
whether interim relief is required;
the impact on the company’s operations and value.
Early correspondence and structured negotiation can sometimes resolve disputes without formal proceedings, particularly where valuation is the principal issue.
Conclusion
Shareholder disputes require careful analysis of constitutional documents, contractual arrangements, and statutory remedies. The appropriate course depends on the nature of the complaint, the company structure, and the shareholder’s ultimate objective.
A clear understanding of rights under the Companies Act 2006 and related insolvency legislation provides the framework within which any dispute must be assessed.
Speak to a Solicitor today
If you require any assistance with Shareholder Disputes, please contact us by sending an email to info@lyoncroft.co.uk, calling us on 020 3576 7170, or complete a contact-us form. Our offices are in Park Royal, West London and you can find our address at the bottom of the page.
This article has been authored by Abdullah Suker, Managing Director of Lyon Croft Law.
