Shareholder Disputes/Quasi Partnership

In private companies holding shares often means a close involvement in the company, in order to protect your investment.

Shareholders fall out when their interests diverge. There may be shareholders who are also directors - and they may have other aims and interests. There may be arguments about the size and frequency of dividend payments. These may all lead to disputes between shareholders

There may be a Shareholders' Agreement in place which governs how shares are to be held, sold or otherwise passed on. The agreement may also restrict of impose voting provisions. If that agreement is not kept to there may be a fight between shareholders.

Often smaller businesses (especially family businesses) are run on a fairly ad hoc basis - without the rigorous application of the law. This can be a major area for dispute when problems arise.

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Director Removals and Resignations

It is so important that a company's members (shareholders) can keep control of a company that the s168 Companies Act 2006 provides that the members may remove a director at any time by passing an Ordinary resolution, which overrides any contract between the company and the director.

Even if the director can petition the Court on the grounds of unfair prejudice, the Court will not - exceptional circumstances aside - grant an injunction to maintain the directorship. In those circumstances, a claim for winding up the company or damages can still be made.

To pass an Ordinary resolution, more than 50% of the vote of all members (or class a members) is required.

A resolution to remove a director requires special notice; the director most be notified and has the right to make representations and have them sent to every member (unless the company persuades the Court otherwise, to prevent abuse).

Once a director is removed his place can be filled at the meeting removing him, or as a casual vacancy. The new director stands in the shoes of the old for purposes of retirement by rotation.

A director may resign at any time, even if there is no such provision in the articles. Resignation is effective when the director gives notice to the Secretary. No formal "acceptance” is required. Once given, the resignation cannot then be withdrawn.

A verbal resignation given and accepted at a general meeting is effective and binding.