Shareholder Rights and Influence under the UK Companies Act 2006
The Companies Act 2006 grants shareholders in the UK significant powers to influence the decisions and direction of the companies in which they hold equity, even if their shareholding is relatively small. This influence can be particularly effective when shareholders collaborate with others, use public opinion to their advantage, or exercise their legal rights under the Act. This article outlines the various channels through which shareholders can exert their influence and the legal rights available to them.
Joining Forces with Other Shareholders
Shareholders, especially those with smaller holdings, can amplify their influence by joining forces with other shareholders, including institutional investors. This collective approach allows them to stay better informed and exert greater pressure on company management.
Leveraging Public Opinion
Public opinion can be a powerful tool, particularly for shareholders in publicly listed companies. The higher the company’s profile, the more attention shareholders can generate, especially if they engage with journalists and the media to highlight their concerns or campaigns.
General Meetings: A Platform for Influence
Shareholders have the right to attend a company’s general meetings, including Annual General Meetings (AGMs) and other general meetings. These meetings provide an opportunity to question the board of directors and influence decisions through voting.
Annual General Meetings (AGMs)
AGMs are particularly important as they include the election or re-election of directors, which must occur annually under the UK Corporate Governance Code for listed companies. Additionally, the Investment Association maintains a public register showing where FTSE All-Share companies have faced significant shareholder dissent (20% or more votes against any AGM resolutions). Companies that face such dissent must consult with shareholders to understand the reasons behind the vote and report back on actions taken within six months.
The Power to Appoint and Remove Directors
Shareholders can exert considerable influence by appointing or removing directors. Under Section 168 of the Companies Act, shareholders have a statutory right to remove a director by ordinary resolution (more than 50% of votes). This requires special notice to the company, and the director in question has the right to make representations to the shareholders.
However, company articles may include a Bushell v Faith clause, which grants a director who is also a shareholder additional votes on resolutions to remove them, making it difficult for shareholders to remove such a director.
Right to Table Resolutions
Shareholders have the right to propose resolutions at both AGMs and general meetings. For an AGM, this requires at least 5% of the total voting rights or at least 100 members with shares of £100 or more paid up on average per member. The same thresholds apply for requisitioning a general meeting under Section 303 of the Companies Act.
If the directors do not call a meeting as required, shareholders can do so themselves under Section 305, and the company must reimburse their reasonable expenses.
Questions at General Meetings
Under Section 319A of the Companies Act, traded companies are required to answer questions from shareholders at general meetings, provided the questions relate to the business being dealt with and answering them does not involve disclosing confidential information or interfere with meeting preparation.
Shareholder Statements and Resolutions
Sections 314 to 317 of the Companies Act allow shareholders to require the circulation of statements (up to 1,000 words) on matters to be dealt with at a general meeting. This can be a powerful tool for raising issues and influencing company decisions.
Blocking Resolutions and Takeovers
Shareholders holding specific percentages of a company’s shares have additional powers. For example, those holding more than 10% can block the squeeze-out of minority holdings following a takeover offer. Shareholders with over 25% of shares can block a special resolution, which requires a 75% majority, and they can also block a takeover attempt via a Scheme of Arrangement.
Legal Actions for Shareholders
Shareholders who believe they have been unfairly treated or suffered losses due to misleading information can take legal action under various provisions.
Section 994 of the Companies Act allows shareholders to petition the court if the company’s affairs are conducted in a manner unfairly prejudicial to their interests.
Section 260 provides a mechanism for shareholders to bring derivative claims against directors for breach of fiduciary duty. This allows shareholders to seek relief on behalf of the company for wrongs committed by its directors.
Section 90 of the Financial Services and Markets Act 2000 (FSMA) gives shareholders the right to compensation if they have suffered losses due to untrue or misleading statements or omissions in a prospectus.
Section 90A FSMA permits similar actions for losses related to market announcements, though claimants must demonstrate reliance on the misleading information.
Conclusion
The Companies Act 2006 provides UK shareholders with a robust framework to influence the companies they invest in. By understanding and exercising these rights—whether through general meetings, appointing or removing directors, or pursuing legal action—shareholders can ensure that their voices are heard and that companies are held accountable for their actions. Whether for promoting environmental, social, and governance (ESG) causes or ensuring a proper focus on profitability, shareholders have the tools they need to influence the direction of their companies.
For more detailed legal guidance on shareholder rights and how to exercise them, feel free to contact Eddison Cogan Lawyers.
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