3. Shareholders of a Company
Shares = a "bundle of rights" implying ownership without requiring shareholders to manage the company directly. Limited liability protects shareholders from being personally liable for debts, provided they've fully paid for their shares.
General
Requirements for Membership
To become a shareholder, a person must:
1. Agree to become a shareholder of a company.
2. Have their name entered into the company's register of members.
Register of Members
Every company must maintain a register that includes:
Details of each member, including the number and class of shares owned.
Amount paid for shares, names, and addresses of members.
Date of entry in the register.
Members must notify the company of any changes to their details within 2 months — failing is considered an offense.
Member Rights RE Register:
The register must be accessible for inspection by any member free of charge and by others for a fee.
Shareholders have a right to receive share certificates once they have been entered into the register - this certificate is evidence of their membership in the company.
Becoming a Shareholder
Methods of Acquiring Shares
Subscribe to Company MOA (Memorandum of Association)
Those who sign the MoA on incorporation automatically become members; their names must be registered.Purchase Company Shares
Upon issuing new shares, the company must register the buyer and provide a share certificate within 2 months.Purchase Shares from Existing Shareholders
Existing shareholder sells share to another — this happens without new funding (no new money is made for the company) → New owner must complete a share transfer form for registration
→ A share certificate must be issued within 2 months post-transfer
Can a Company be a Shareholder?
A company can hold shares in another company, represented by a human acting on its behalf to vote at GMs
This can occur through proxies or a corporate representative, typically appointed by the company's board regulation (BR).
A company holding shares in another company may be a holding company — this means it is a parent entity that exists primarily to own and manage other companies, rather than produce goods itself.
A holding company may own either of the following:
Subsidiaries: companies controlled by a parent/holding company (usually >50% ownership);
Wholly Owned Subsidiaries: subsidiaries with 100% of its shares owned by the parent.
Person of Significant Control (PSC)
A PSC is any individual or company that holds significant power over a company, typically:
1. Owns over 25% of shares; or
2. Holds over 25% of voting rights; or
3. Has the right to appoint/remove board directors; or
4. Has the right to exercise, or does ecercise, significant influence or control over the company.
Upon company incorporation, a PSC's identity is recorded and maintained by Companies House, which the company must update within 14 days of being aware of such change AND updating the register.
Responsibilities of PSCs and Companies
A PSC must inform the company within one month of any changes in their status.
Companies must take reasonable steps to identify PSCs, including sending notices to suspected PSCs and third parties.
Companies House must be notified about PSC details promptly — Failure to comply with notification requirements is an offense for company officers.
Shareholder Rights
General Rights
Limited Liability
Shareholders are only liable for the amount they have paid for shares — Creditors cannot pursue them beyond this amount.
Contractual Rights under CA2006
Articles of Association (AoA) = contract between shareholders company → Shareholders can enforce the AoA and have contractual rights concerning membership rights
Contractual Right | Description |
|---|---|
Voting Rights | Shareholders have right to vote in GMs, including via proxy. Those with at least 10% shares can demand a poll vote (cannot be restricted by AoA). |
Receiving Notice of GMs | With sufficient information so shareholders know what is being proposed |
Right to Call a GM | Shareholders owning at least 5% can request directors to hold a GM |
Dividends | Shareholders are entitled to dividends when declared, as long as profits are available for distribution. |
Rights Requiring OR | Shareholder rights requiring ordinary resolutions include:
|
Other Rights:
Unfair Prejudice Claim
Petition to the court for unfair prejudice claims against themselves or other shareholders, e.g. excessive remuneration for directors
Shareholders may owe a duty of good faith to one another as per their agreements. If majority shareholders act to the detriment of a minority shareholder, it may constitute unfair prejudice.
Courts assess claims using an impartial perspective, often employing a reasonable man test.
Remedies typically involve buying out the shares of the prejudiced shareholder.
Application to Wind Up the Company
Any shareholder can apply to wind up the company = liquidate and end its operations.
This right is granted only if it is just and equitable, and the company must be solvent.
Shareholders may pursue this when there is a deadlock between directors or disagreements on company management.
Information Rights to:
Receive a share certificate within two months of purchasing shares or after a transfer.
Obtain constitutional documents upon request.
Receive the company's annual accounts.
Inspect minutes from general meetings, company registers, and specific documents.
Minority Shareholder Rights
Minority shareholder = any shareholder holding less than 50% shares
Statutory Rights: min. shareholders possess extra specific rights to protect against majority control and abuses
Right to request general meetings / circulate written statement before GM relating to one of the matters being voted on
Right to demand circulation of written resolutions
Right to bring actions against directors for breaches of duty
Other rights as mentioned previously (information rights, unfair prejudice claim, right to wind up company
Derivative Claim: A claim made by minority shareholders on behalf of the company for wrongs committed against it by its directors.
Getting Permission: The court’s permission is necessary to proceed with a derivative claim. If not enough evidence is provided at this stage, the court will reject the claim.
What the Court Looks For: If the court considers it, they will grant permission only if the claim:
Aims to help the company succeed; and
Addresses a director’s wrongdoing
Final Checks: The court will check if the issue has been ratified/approved/authorized by the company's board or shareholders. If not, it faces another hurdle.
Court's Decision: If the court doesn’t refuse the claim, it will evaluate things like if the shareholder is acting in good faith and whether the issue is serious enough for the court to consider.
Final Approval: Ultimately, the court may allow or deny the claim based on these evaluations.
Types of Shares
Ordinary Shares
Effective units of ownership in the company, granting rights to:
Vote on company matters
Receive dividends
Rights in share capital upon winding up
Preference Shares
These are fixed dividends on assets during liquidation, prioritized over ordinary shareholder dividends — they usually lack voting rights
Two types of preference shares:
Cumulative: Unpaid dividends accrue (i.e. in addition to current year dividends, shareholder gets paid any missed dividends from both the year before and previous years if applicable)
Participating: In addition to guaranteed fixed divident, shareholder receives dividends as ordinary shareholders when declared
Preference shareholders may have priority over capital return when winding up the company.
Order of Share Payment Upon Liquidation
Priority Level | Who Gets Paid | Notes |
| E.g. banks with fixed security | Top priority over secured assets |
| E.g. certain employee wages, some tax debts | Limited statutory category (not “preference shareholders”) |
| Subject to prescribed part being set aside for unsecured creditors | Rank below fixed charge holders |
| E.g. suppliers, landlords (no security) | All treated equally (pari passu) |
| Only if money remains after paying principal amounts | |
| Only after all debts are paid | Get paid before ordinary shareholders |
| Final in the queue | Rarely receive anything in insolvency |
Quick abbreviation → CPO
C – Creditors (further abbreviation: SPF 4 U)
S – Secured Creditors
P – Preferential Creditors: employee wages (up to £800 for 4 months), HMRC for PAYE/VAT
F – Secured Creditors with Floating Charges
U – Unsecured Creditors
P – Preference Shareholders
O – Ordinary Shareholders