5. Shareholders & Minority Shareholder Remedies

Question 1

How many members must a private company have?

Answer 1

1

Question 2

(1) What administrative requirement must all companies comply with regard to recording who owns shares in it?

(2) Where must this be kept?

Answer 2

(1) Keep a ‘Register of Members’
(2) Kept by company UNLESS chooses to keep at CH

Question 3

(1) What agreement can shareholders enter into to govern their relationship (e.g. how voting rights will be exercised)?

(2) Is this agreement public or private?

Answer 3

(1) Shareholders’ Agreement
(2) Private

Question 4

Where are the rights attached to different classes of shares set out?

Answer 4

Articles of Association

Question 5

Assuming the Articles are silent, what 2 methods are there to vary the rights attached to a class of share?

Answer 5

(1) Written consent of at least 75% shareholders by value in the AFFECTED CLASS
OR
(2) Special Resolution (SR) of shareholders in the AFFECTED CLASS

Question 6

What is a majority shareholder?

Answer 6

An individual shareholder who has > 50% of the voting rights

Question 7

What is a minority shareholder?

Answer 7

An individual shareholder who has <50% of the voting rights

Question 8

What level of shareholder approval is necessary for the following powers:

(1) Consent to short notice of a General Meeting (GM)?
(2) Refuse to consent to short notice of a General Meeting (GM)?
(3) Force a Director to call a GM
(4) Demand a ‘Poll Vote’ at GM

Answer 8

(1) Majority in number of shareholders & hold 90% voting rights
(2) >10% voting rights
(3) 5% voting rights
(4) 2 voting shareholders OR 10% voting rights

Question 9

What are 3 key protections for minority shareholders?

Answer 9

(1) Petition for unfairly prejudicial conduct
(2) Derivative action
(3) Just and equitable ‘Winding Up’

Question 10

Who can bring an ‘unfair prejudice’ claim?

Answer 10

Any shareholder

Question 11

What are the 3 elements of an ‘unfair prejudice claim’?

Answer 11

Application to the court on the grounds:
(1) Company’s affairs
(2) Conducted in a way that is ‘unfairly prejudicial’
(3) To interests of its members

Question 12

In an ‘unfair prejudice claim’, what does ‘Company’s affairs’ mean?

Answer 12

Acts done by Directors
(NOT - disputes between shareholders)

Question 13

For an ‘unfair prejudice claim’ to be brought, it must have harmed the ‘interests of members’. What is an example of this?

Answer 13

Director’s actions caused a decrease in the value of shares

Question 13

In an ‘unfair prejudice claim’, give 4 examples of Director’s conduct that may be considered ‘unfairly prejudicial’?

Answer 13

(1) Breach of Director’s Duties
(2) Failing to pay dividends when commercially viable
(3) Exclusion from management
(4) Breach of Articles / Shareholders’ Agreement

Question 14

What is the most common remedy given for a successful ‘Petition for unfairly prejudicial conduct’ claim?

Answer 14

Share purchase order (i.e. minority shareholders shares bought out)

Question 15

What are the 2 key differences between the minority shareholder remedy of (a) Petition for unfairly prejudicial conduct and (b) Derivative action?

Answer 15

(1) Relief granted to:
(a) Individual shareholder
(b) Company

(2) Court permission to apply required for:
(a) NO
(b) YES

Question 16

Who can bring a ‘derivative action’?

Answer 16

Any shareholder

Question 17

What is the main purpose of a ‘derivative action’ as compared to a ‘Petition for unfairly prejudicial conduct’?

Answer 17

To obtain relief for the company rather than the individual shareholder personally

Question 18

What is the most common ground that a ‘derivative action’ is made under?

Answer 18

Breach of Director’s Duties

Question 19

(1) Can a minority shareholder bring BOTH (a) Petition for unfairly prejudicial conduct and (b) Derivative action?

(2) Does the court prefer one or the other?

Answer 19

(1) Yes
(2) Prefers ‘Petition for unfairly prejudicial conduct’

Question 20

(1) When will the court permit a ‘just and equitable winding up’?
(2) What are 2 examples of this

Answer 20

(1) Last resort
(2)
(a) Total breakdown in communication
(b) Total deadlock / inability to make decisions