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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3498
Experience:  Solicitors 2 years plus PQE
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I am a 40% shareholder of a company with massive growth

Customer Question

Hi, I am a 40% shareholder of a company with massive growth potential. I have no shareholder agreement. I was registered at Co's House with the share allocation, I have now been told that the major shareholder of 60% is diluting my shares so that I will end up with 10% or less so that when we sell in 3 years she will have 90%+ of the value - she says she can do this as she pleases in the absence of a shareholders agreement. I was not offered the right to purchase additional shares and she said that if I do exercise my right she will continue to purchase more and more additional shares until she gets to where she wants to be. How can she do this without me having to sign a stock transfer form? This was supposed to my Pension and I am worried I will be left with nothing. Thanks
Submitted: 8 months ago.
Category: Law
Expert:  Alex J. replied 8 months ago.
Hi, Thank you for your question and welcome. My name is ***** ***** I will assist you. She is technically right she can dilute the shares by issuing more shares but you have to note two points:- Does she have authority to allot shares? Technically under S.550 and S.551 of the Companies Act 2006 as a director she may have the power to either allot shares under the articles of association or by virtue of a shareholder resolution. A shareholder Resolution would only require more than 50% of the voting share capital voting in favour of issuing more shares (which she can do by herself);- Pre emption rights - assuming she is legally allowed to allot more shares, she will then be legally obligated to offer the shares to existing shareholders in the pro rata ownership they already (so you would have to have first refusal on 40% of the allotment of shares issued) - this is under S.561 of the Companies Act 2006. If she wants to suspend pre emption rights she would need to do so by (i) A provision in the articles of association (which can last for 5 years) or (ii) by special resolution which would require a 75% majority vote of the existing share capital - and therefore would need your consent. Assuming you have not passed a special resolution to give up the pre emption rights (and there is no such right in the articles of association) - if she as a director approves the allotment of shares and ignores your pre emtpion rights, she will commit an offence under S.563 of the Companies Act 2006 and you could sue her for your losses;- Alternatively and as a last last resort, and if she does not listen to reason, you could sue her for protection against unfair prejudice of a minority shareholder under S.994 of the Companies Act 2006 - if the dilution is cynically done to dilute you.I would suggest the following - check the articles of association and confirm that they do not suspend pre emption rights. Ask her to confirm that you will be allowed to participate in purchasing any new of shares? If she ignores you, you will have to put her notice that you may sue for ignoring your pre emption rights. She can do this without a stock transfer form because, she is not transferring existing shares, she is creating more shares with the effect of diluting the existing shareholders. I look forward to hearing from you.Kind regards AJ
Customer: replied 8 months ago.
Where do I find a copy of the Memorandum & Articles of Association?
Expert:  Alex J. replied 8 months ago.
Hi thank you. They will be with the company books and statutory records or you can obtain them from Companies House https://www.gov.uk/government/organisations/companies-house - Can I assist you any further? I would be most grateful if you could rate my answer in the mean time? kind regards AJ

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