Key Statutory Rights of Shareholders
As a founder, there will be a time where you are considering whether you raise should funds to or bring in a strategic partner to help the business grow. Both of these options will require the company to issue and allot shares to investors or the strategic partner. But what are the rights of shareholders of the company?
The rights of a shareholder, whether as a founder (as a majority shareholder), an investor or strategic partner (as a minority shareholder) depend on how many shares such shareholder owns. If a shareholder holds over 50% of a company’s issued shares, they are likely to have a controlling interest that gives them more rights and allows the shareholder more power to shape its direction. If a shareholder holds less than 50% of a company’s issued shares, then they will have less rights and in turn, less power to shape the direction of the company.
Below is a table setting out the key statutory rights (those that are enshrined by law, predominantly under the Companies Act 2006) of shareholders at the key percentage thresholds. They cannot be reduced to the detriment of any shareholder.
Some of the statutory rights apply if the shareholder holds a certain percentage of the voting shares in the company, others apply if the shareholder has a certain percentage of shareholding in the capital of the company. This distinction is only relevant if there is more than one class of share and at least one of those classes does not carry voting rights. If the company has only one class of share (i.e. ordinary shares), then there is no distinction.
The shareholding referred to in the table below assumes the company only has ordinary shares in issue and relate to both the voting rights and the shareholding in the capital of the company.
| Level of Shareholding | Rights of Shareholder |
|---|---|
| Holding at least one (1) share in the company |
• Ask court to call general meeting • Not to be unfairly prejudiced • Have company wound up if just & equitable • Vote on resolutions • Share certificate • Name entered on Register of Members • Copies of company’s accounts & reports • AGM (if required by articles) • Inspect minutes of general meetings • Inspect register of members & index (free) • Require copy of register of shareholders within 10 days (subject to charge) • Inspect register of directors’ service contracts (free) • Receive dividends (if declared) • Receive final distributions on winding up • Pre-emption right on new issue of shares (unless waived) |
| Holding at least 5% of shares in the company |
• Require circulation of proposed written resolution & statement • Circulate statement on business/resolution at meeting • Call general meeting • Prevent deemed re‑appointment of auditor |
| Holding at least 10% of the shares in the company | • Require audit of annual accounts |
| Holding at least 15% of the shares in the company | • Object to variation of class rights (apply to court to cancel) |
| Holding at least 25% +1 shares in the company | • Block special resolution |
| Holding at least 50% +1 shares in the company | • Pass ordinary resolution |
| Holding at least 75% of the shares in the company | • Pass special resolution |
| Holding at least 90% of the shares of the company | • Hold general meeting on short notice |
| Holding 100% of the shares of the company | • Can do pretty much anything |
Shareholders can enhance their rights through a shareholders’ agreement (or similar agreement) or by amending the Company’s articles of association. What enhanced rights are agreed to will depend on the bargaining power of the founder of the company and incoming investor(s) of the company. The rights may be rebalanced so that minority shareholders have additional rights to determine the direction the business is going in, or prevent something happening, or certain minority shareholders are more given closer access to the board and the company’s financial information. Such additional rights would be set out as a list of reserved matters, or special clauses are included, in the company’s articles of association or within a shareholders’ agreement.
How can Dragon Argent help?
Dragon Argent’s corporate and commercial team can guide you through the processes or what clauses and provisions are suitable and required to meet the needs of your company and those of your investor and/ strategic partner.
Schedule a call with a member of our corporate and commercial team today to discuss you’re your needs under a shareholders’ agreement or articles of association.
Speak to one of our Corporate solicitors today ↓
Written by:
Head of Corporate & Commercial Solicitor
Corporate & Commercial Solicitor
Join our network of entrepreneurs and benefit from a range of support including an ecosystem of trusted partners, our weekly blog, plus webinars and whitepapers on the leading challenges founders face when scaling businesses.
