Minority Shareholders To Be Silenced

Helen Wallwork company and commercial specialist at Foot Anstey, explains how changes in company law will affect shareholders.

Directors wanting to see the reduction of company red tape will welcome new laws coming into effect in October, but some shareholders will see the changes as a reduction in their rights.

The two main changes are:

* Companies will need to positively opt in to holding AGMs
* Companies will no longer need the unanimous approval of shareholders for written resolutions.

Currently Annual General Meetings are the opportunity for shareholders to question directors regarding the financial position of the company and its dividends. After October, unless companies opt to hold an AGM, shareholders will not have this opportunity and so this will deprive them of a forum for airing their views and participating in the decision making process.

Another change is the removal of the requirement for written resolutions to be approved unanimously by shareholders of private companies. The problem under the current law is that often there are too many shareholders, which makes it difficult to get all their signatures, and one or more shareholders will not approve the proposed resolutions.

After October written resolutions will be placed on a similar footing to the passing of resolutions in a general meeting. Here it is shareholders holding the majority of the issued voting shares in a company that pass ordinary resolutions and shareholders holding 75% of issued voting shares that pass special resolutions. All shareholders will receive notice of the written resolutions to be passed but the majority shareholders will be able to pass them immediately without recourse to the minority.

Although these changes may reduce the administrative burden for private companies, there is clearly a risk that the rights of minority shareholders to participate in the decision making process of a company will be diminished.

Companies can protect their minority shareholders by:

* putting in place a shareholders’ agreement which stipulates that the more important decisions of the company must be approved by the shareholders unanimously.

* changing the Articles of Association of a company to preserve the requirement for the company to hold AGMs.

Changes to the mechanics and procedure for passing shareholders’ written resolutions will be introduced with effect from October this year when relevant provisions of the New Companies Act 2006 come into force.

Companies need to find ways of balancing the reduction in red tape with the continuing confidence and approval of their shareholders. Both of these are critical to the success of every business.

Published 07/08/2007. The author of this article is Helen Wallwork