If you own less than half the shares in a company, you’re a minority shareholder. While this is common, it can sometimes leave you vulnerable, especially if those in control (majority shareholders) make decisions that harm your interests or exclude you from key aspects of the business.
Fortunately, the law offers several remedies to protect minority shareholders. This article provides a high-level explanation of those remedies in simple terms and outlines what you should consider before taking legal action.
What Can Go Wrong for Minority Shareholders?
The usual ways in which Minority shareholders may face unfair treatment are:
- Being excluded from management or decision-making
- No dividends being paid, even when the company is profitable
- Misuse of company funds by directors or majority shareholders
- Dilution of your shareholding, reducing your influence and value
- Being forced out of the company at an unfair price
Legal Remedies Available
1. Unfair Prejudice Petition (Section 994 of the Companies Act 2006)
This is the most common and flexible remedy for minority shareholders.
You can apply to court if the company’s affairs are being run in a way that is unfairly harmful to your interests.
Common examples include:
- Being excluded from management despite an understanding you’d be involved
- Dividends being withheld from minority shareholders while others benefit
- Issuing new shares to dilute your ownership unfairly
- Directors acting in their own interests, not the company’s
The court can order the majority shareholders to buy your shares at a fair value, sometimes with a premium to reflect the unfair treatment.
2. Derivative Claim (Sections 260–263 of the Companies Act 2006)
This remedy is about protecting the company itself, not just your personal interests.
You can apply to bring a claim on behalf of the company if directors are harming it through negligence, breach of duty, or misuse of assets.
Examples include:
- A director using company funds for personal expenses
- A director entering contracts that benefit them personally
- Breaches of duty, such as failing to act in the company’s best interests
Before proceeding with this type of claim, you must obtain the court’s permission and demonstrate that it serves the company’s best interests.
3. Just and Equitable Winding-Up (Section 122(1)(g) of the Insolvency Act 1986)
This is a last resort remedy, commonly referred to as the “nuclear option”, when the company can no longer function fairly due to the way in which it is being ran.
You can ask the court to wind up the company if it’s no longer fair or practical to continue. This will in effect close the company.
Common grounds include:
- Deadlock between shareholders or directors
- Breakdown of trust, which is more common in small or family-run businesses
- Exclusion from management, where there was a mutual understanding of involvement
- The company’s original purpose has failed or is no longer achievable
If the court agrees, the company will be wound up and a liquidator will be appointed to realise the company’s assets and distribute the proceeds.
Final Thoughts
Whilst it may feel like it, Minority shareholders are not powerless against majority shareholders. The law offers ways to protect both the shareholder and the company—but knowing when and how to use them is crucial. If you believe you’re being treated unfairly, it’s important to get legal advice early so that you can assess your options.
Thinking about litigation? Let’s talk.
If you’re facing a dispute and unsure what your next step should be, speak to our experienced litigation team. We’ll explain your options clearly, work with you to find a strategy that fits your goals – and help you achieve the best possible outcome.
Craig Bennett is Legal Director in our expert Dispute Resolution and Insolvency team.
If you have any queries about the subjects discussed above, please do not hesitate to contact Craig or another member of the Commercial Dispute Resolution team in Derby, Leicester, or Nottingham on 0808 258 0461 or via our online enquiry form.