Shareholder Disputes Series (Part 1 of 10): Common Shareholder Problems
Introduction
Proprietary companies are often controlled by a single shareholder or a group. The majority’s nominated directors will control the board and therefore the activities of the company. If the majority run the company in their own interests (whether as shareholders or with their nominated directors), the detriment to the minority can be serious. The minority shareholders have limited options because they cannot vote the directors out, in a general meeting, without the majority’s support. Getting out is difficult because they cannot force the majority to buy them out. As it’s not a listed company, they are also likely to find it hard to find a buyer of their minority stake. They are locked in with no control of their investment. It’s a difficult position to be in.[1]
Common Complaints
The following are the most common complaints made by minority shareholders[2]:
- The majority are paying themselves excessive remuneration;
- Little or no participation in profits;
- The majority are diverting corporate opportunity / are operating a competing business;
- Exclusion from management;
- No involvement in important decisions;
- Limited access to information about the company’s affairs;
- Inability to prevent dilution of their equity stake;
- No freedom to transfer shares;
- No market for their shares;
- Bad management by the majority.
Ten Part Series
In this 10 part series, I consider each of these complaints with recommendations on how a shareholders agreement will assist to prevent them. It is not a consideration of the legal duties and remedies that may prohibit the bad conduct or the remedies available when such conduct occurs.
If you have, or anticipate, a dispute between shareholders in your company, please call me on (07) 3103 3199 to discuss how I can help.
References
[1] Lipton, Phillip; Herzberg, Abe; Welsh, Michelle, Understanding Company Law (Law Book Co, 17th ed, 2014), 629
[2] Cadman, John, Shareholders’ Agreements (Sweet & Maxwell Limited, 4th ed, 2004), 190
In a dispute with your co-owners? See Shareholder Disputes in Queensland.
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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