The English rules on altering articles do not adequately protect minority shareholders. Discuss.
Part A Question 2: The English rules on altering articles do not adequately protect minority shareholders. Discuss.
At a glance, the English rules on altering Articles of Association (hereon AA) for minority shareholders do not appear adequate, however, the English legal system has the ability to give some protection through remedies if it appears the article’s alteration is unfairly prejudice (subject to satisfying the test). There are also pre-emptive rules, used before the AA is created which if dealt with, assist tremendously in the future of the shareholding relationship.
AAs are defined within s.17 and 18 Company Act 20061 (CA2006), as an inward-looking set of rules governing the running of a company, including issues such as the distribution of power, decision-making, rules relating to rights attached to shares including transfers and transmission alongside many more2. However, the AA contents are not compulsorily laid down by the CA2006, as under the default rules of s.20, if a company does not register their own AA, Model AA apply - which differ depending on whether the firm is private or public.
Under s.21CA2006 ‘a company may amend its articles by special resolution’, which requires a minimum threshold of 75% votes cast in a general meeting3. This rule gives the majority shareholders considerable power, thus if you own a 25% shareholding or less, your votes will not affect the outcome in altering the AA4 Instantly it appears as though the minority shareholders have no protection in relation to altering AA. However, this is a special resolution thus requires a higher threshold than the 50% ordinary resolution, which is used on various occasions; such as increasing share capital and directors power to allot shares.
AA deal with the everyday management of a company. They include all the provisions relating to the rights of shares, procedures for appointing directors and very importantly pre-emption rights on allotments. Pre-emption rights on
At a glance, the English rules on altering Articles of Association (hereon AA) for minority shareholders do not appear adequate, however, the English legal system has the ability to give some protection through remedies if it appears the article’s alteration is unfairly prejudice (subject to satisfying the test). There are also pre-emptive rules, used before the AA is created which if dealt with, assist tremendously in the future of the shareholding relationship.
AAs are defined within s.17 and 18 Company Act 20061 (CA2006), as an inward-looking set of rules governing the running of a company, including issues such as the distribution of power, decision-making, rules relating to rights attached to shares including transfers and transmission alongside many more2. However, the AA contents are not compulsorily laid down by the CA2006, as under the default rules of s.20, if a company does not register their own AA, Model AA apply - which differ depending on whether the firm is private or public.
Under s.21CA2006 ‘a company may amend its articles by special resolution’, which requires a minimum threshold of 75% votes cast in a general meeting3. This rule gives the majority shareholders considerable power, thus if you own a 25% shareholding or less, your votes will not affect the outcome in altering the AA4 Instantly it appears as though the minority shareholders have no protection in relation to altering AA. However, this is a special resolution thus requires a higher threshold than the 50% ordinary resolution, which is used on various occasions; such as increasing share capital and directors power to allot shares.
AA deal with the everyday management of a company. They include all the provisions relating to the rights of shares, procedures for appointing directors and very importantly pre-emption rights on allotments. Pre-emption rights on