When can a minority shareholder take action?

minority shareholders

A minority shareholder is one who owns less than 50 per cent of a company. In that great tradition of majority rule, the shareholders who own more than 50 per cent of the company, either individually or collectively, have the final say, assuming they can all agree.

Being a minority shareholder in a major listed company is fairly normal. However, things may become more complicated with smaller, unlisted private companies. An example might be a smaller company owned by two families, with one family owning 60 per cent of the shares, and having two directors in the company, the other with 40 percent, and one director. Many other variations on this theme are possible.

Indeed, minority shareholders in smaller, more tightly held companies may be more at risk. This could be because of closer day-to-day involvement, or the shares not being as liquid, and the possibility of inferred pressure being applied.

What rights do minority shareholders have?

Even as a minority shareholder, you have all the same rights as majority shareholders, and you cannot legally be deprived of them.

Every shareholder, major or minor, has the right to receive documentation including notices of meetings, the right to either vote at such meetings or appoint a proxy, and the right to be heard.

What happens if a major shareholder acts unethically or illegally?

Whether a large listed company, smaller unlisted company, or start-up, the Corporations Act applies, and the shareholders, large or small, majority or not, must still conduct affairs according to responsible and ethical Australian business codes. Failure to do so is not just unethical, it can also be illegal.

However, if a major shareholder uses their voting power to act inappropriately, or to act in such a way that the minority holder is denied rights, is unduly intimidated or unfairly financially disadvantaged, then it may be that there are legitimate grounds for claiming oppressive behaviour. The Corporations Act specifically addresses this situation: Part 2F.1 paragraphs 232 through 235 provides a starting point for reading.

This list of oppressive behaviours is certainly not exhaustive:

  • Denial of access to company records.
  • Abuse of voting power.
  • Inappropriate action to appoint or remove directors.
  • Intimidating or oppressive conduct during board meetings.
  • Inappropriate use of company funds.
  • Sham investments using company funds.
  • Inappropriately using voting power to favour related parties.
  • Exclusion from participation.

What recourse do minority shareholders have?

Clear communication, or if it comes to it, professional mediation, will hopefully resolve issues. If not, it may be that you need to progress to sound legal advice from experts in the field.

It will greatly help your cause if you have:

  • Written records of all communications – don’t rely on memory or verbal accounts.
  • A written timeline of events.
  • Copies of all appropriate documentation.

Keep in mind that the failure of various shareholder groups to get along or even to agree is not in itself grounds for action – it usually means that more or better communication is required.