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How do shareholders affect a business?

Posted on Wednesday, 4th November 2015 by

If you are interested in starting up your own company, it is fundamental that you understand your obligations as a shareholder.

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Ownership of a company is defined by shares. When someone buys shares, they become a shareholder and accordingly own a proportion of the company. The percentage of shares held by a shareholder determines the effect they can have on company decision making.

If the company is in debt, the shareholders could be held liable. However, the amount of their liability is limited by their investment.

Shareholders are the financial supporters of a company and as such they have ultimate control. Unlike directors, who deal with the day to day running of the company, a shareholders’ role is to vote on matters to ensure directors do not go beyond their powers.

A company’s articles of association form the basis of a statutory contract between shareholders and the company. Shareholders can amend a company’s articles by passing a special resolution, in which at least 75% of members entitled to vote must agree to the changes.

Shareholders may extend the remit of their role and also become directors of a company. Although these two roles are usually mistaken as one and the same, they are separate and distinct. Shareholders appoint directors to manage the company in accordance with the Companies Act 2006 and articles of association. Unless a shareholder is a director they will not deal with day to day decisions on how the company is run.

A shareholders’ agreement works in conjunction with the articles but the key difference is that it is not available at Companies House; it is a private agreement. The agreement can provide protection for all parties, protecting their investment, and provide a way to minimise any potential business disputes.

This type of agreement can provide protection for shareholders, and may include terms on governing the issue and transfer of shares, and directorships. For example, a provision may be included that requires that only a majority shareholder may be a director.

As the positions of shareholders is different in each case, independent legal advice should be sought when discussing any matters raised in this article.

If you would like to discuss the contents of this blog or have any related queries, please do not hesitate to contact our business law team on 0116 266 5394 or contact Jade Price direct by email at jade.price@ehlsolicitors.co.uk.

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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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