The former are more often than not publicly quoted companies. As the ownership of shares is diverse and dispersed across what can be considered as the general public, the number of shareholders is usually significant. This means there could be a wide range of views on how the company should be run and opinions could differ greatly.
By contrast SMEs are usually private limited companies which have far fewer shareholders, and, in the more successful business at least, a common vision and broad agreement on the way forward.
Despite those differences, some lessons can be learnt by SMEs from the situation that directors of Royal Dutch Shell found themselves in.
Commonly, as SMEs have fewer shareholders than publicly listed companies, there is a high likelihood that a shareholders’ agreement will have been put in place.
Such an agreement records and manages the ongoing relations between the shareholders. It provides a set of rules for matters such as voting, dividend payments and how disputes between the members of the company should be resolved.
This gives minority shareholders a say in the business and affords a certain degree of security and protection. The situation is more complicated if one is not in place.
The law makes it clear every minority shareholder has the right to complain if rights have been unfairly prejudiced. This could cover a whole range of issues but often includes matters such as directors exceeding their powers, misuse of company funds and the company’s shares.
Any minority shareholder is entitled to make an application to the Companies Court to challenge behaviour that he/she believes is unfairly prejudicial to him/her.
This can include but is not limited to matters such as failing to pay declared dividends, personal use of company funds or assets, undertaking activities which are not permitted under the Articles of Association or acting in a way which might result in the company’s insolvency.
If shareholders decide to take such action, they must ensure that it is taken in good time as the court can reject an application if matters were allowed to run. The court will consider an array of issues when dealing with such an application including the minority shareholder’s own conduct and it has a wide discretion on the remedy it could order.
Consequently anyone contemplating such an action should be aware that the applying shareholder could be required to sell his or her shares to the remaining shareholders, if the court believes this would be the most practical solution.
The case of VB Football Assets v Blackpool Football Club (Properties) Ltd (formerly Segesta) Ltd  EWHC 2767 is a great recent example of a successful minority shareholders’ action. The shareholders were in dispute regarding the manner in which the majority shareholder had conducted the affairs of the Blackpool Football Club.
The court ruled in favour of the minority shareholder and ordered the club’s long-term owner and convicted rapist, Owen Oyston, to pay the minority shareholder, Valeri Belokon, over £31 million. The judge in the case, Mr Justice Marcus Smith, found Oyston’s behaviour to have been greatly prejudicial.
When making decisions on behalf of a company, it is important to consider the minority shareholders. They are not helpless and there are alternative courses of actions available to them to ensure that their rights are not infringed. In extreme circumstances an aggrieved shareholder may request the court to wind up the company, so that shareholders can go their separate ways.
Chris Wilks is partner and head of SA Law‘s corporate and commercial department
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