A minority shareholder has certain statutory rights, depending on the size of its stake in the company. Under English law, an interest of 25% gives the shareholder the power to block the passing of special or extraordinary resolutions, which covers a limited but important number of matters. However, a minority shareholder cannot block ordinary resolutions, which are decided by majority vote and are required for most decisions of the company. A minority shareholder may also, in extreme circumstances, be able to apply to the court on the basis of conduct which amounts to unfair prejudice by majority shareholders, but the remedy is limited and rarely a form of satisfactory protection.
Given the limitations of the protection afforded by statute, minority shareholders will seek express contractual protections in the shareholders’ agreement and/or articles of association of the company. A minority shareholder with a large stake or in a strong bargaining position may seek a right to appoint a director supported by a requirement that its representative is a necessary part of a quorum. It is also important to have veto rights over certain important matters (known as reserved matters) which can then be entrenched at board or shareholder level, through the requirement that they be subject to unanimous or super-majority approval.
Additional protections for minority shareholders may include tag-along rights, and establishing a put option, whereby majority shareholders can be obliged to purchase the shares of the minority shareholder in accordance with a pre-determined price formula and at a defined stage.