It is not uncommon for individuals be they the original founders, small investors or employees for find themselves being offered minority shareholdings in small often start-up companies. Sometimes these individuals are also company directors and employees. As Directors they are burdened with onerous legal obligations of fiduciary duties and whilst they have well established rights and entitlements as employees their position as shareholders attracts very little protection.
Many minority shareholders with the benefit of good sound independent legal advice ensure that from the outset they secure as much protection as they can by insisting that a Shareholders agreement is put in place to protect their interests and give them a voice in the running of the business, so as to protect their proprietary and commercial interest.
Unfortunately however many of those with small shareholdings don’t or can’t ensure that a shareholders agreement is put in place so that when things go wrong for them and they seek advice as to their rights and entitlements they are surprised at how limited those rights are.
The statutory rights of minority shareholders in Irish companies are set out in detail in the Companies Act 2014 (“the 2014 Act”). Section 212 of the 2014 Act is the main provision dealing with this area, but there are numerous other provisions of the 2014 Act that give protection to minority shareholder interests where they may otherwise be infringed upon. It is important to note that some of the protections in the 2014 Act may be modified by a company constitution, so this guide should be read in conjunction with the relevant company constitution. The below table sets out these provisions in detail:
|Companies Act 2014, s 89||Where a company has multiple classes of shares, if the rights of a particular class are varied, shareholders holding at least 10% of the shares in that class may apply to the court to have the variation cancelled.|
|Companies Act 2014, s178 and s1101||s178 allows shareholders with at least 10% of the company’s voting rights to require a general meeting to be called within 21 days and held within 2 months of request; and may request the tabling of a particular resolution at said meeting. Likewise, s1101 allows members holding at least 5% of the voting rights in a public limited company to require the directors to call a general meeting.|
|Companies Act 2014, s181(ii)(a)||Where a meeting has been called at short notice, any shareholder with a right to vote at that meeting may object to the short notice given.|
|Companies Act 2014, s191||Any special resolution or amendment to a company constitution can be blocked if shareholders with more than 25% of the voting rights vote against the resolution or amendment.|
|Companies Act 2014, s212||s212 allows a minority shareholder to make a claim for minority oppression where company and/or its directors act in such a way as to disregard the minority shareholder’s interests, or in an oppressive manner. The court has a wide discretion when it comes to remedying such a situation, including ordering the minority shareholder to sell their shares.|
|Companies Act 2014, s457||Where a takeover offer leads to not less than 80% of the voting rights in the company being acquired, any shareholder whose shares were not acquired as part of the takeover process may require the purchaser to acquire their shares as well.|
|Companies Act 2014, s569(e)||Any shareholder may apply to the court to seek the liquidation of the company where it is just and equitable to do so – examples include where the company affairs have been mismanaged or where the company is not in a position to make decisions due to managerial deadlock.|
|Companies Act 2014, s738||Where any company has been struck off the register of companies in Ireland, any shareholder may apply to the court to have the company restored to the register within 20 years of the original striking-off. Reasons for restoring a company to the register include where a shareholder wants the company to continue trading, or to realise assets for shareholders, or to complete a transaction.|
|Companies Act 2014, s1287||Shareholders holding at least 5% of the voting rights of a public company may apply to court, where the company is attempting to re-register as a private company, to block such an attempt.|
There is apart from these provisions, a common law entitlement that entitles a shareholder where a special resolution has been passed to alter the company’s constitution to apply to the court to have the resolution set aside if it is not for the benefit of the company as a whole.
Clearly it is essential that anybody who becomes involved in a company as a minority shareholder to ensure that a correctly drafted Shareholders Agreement is negotiated and put in place so as to afford them the best protection they can get should things go wrong.
For more information on the contact Marc Fitzgibbon, or Griana O’Kelly Partners in our Commercial, Corporate and Employment Law Group.