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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3844
Experience:  Solicitors 2 years plus PQE
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I am a shareholder of a software company, those shares were

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I am a shareholder of a software company, those shares were given to me originally by my managing director as a new company was created to commercialise a software which I invented whilst being employed.
I was originally given a 4.5% shareholding in the company; later on the directors of the company decided to dilute to raise more capital, and I invested in the region of £6,500.00 to retain a 3.89% shareholding.
I am now leaving my employment to seek a new venture, and since all contacts with the directors of the new company were through my work email, I asked them to update their records with my personal email address so that they can contact me should a sale of the company go through. I have not received an acknowledgement, and after chasing, the reply I had was "I will be in touch shortly".
The question I have, is what are their obligations to keep the shareholders informed of any move in the business and what are my rights as I do not trust the directors, and I am worried of some manipulations that they could do to get hold of our shareholding. For example, fold the company and create a new one selling a "similar" product where they would be the sole shareholders.
Also, if the company is well financed, do they have to justify another dilution, as they might try this too to get hold of my shares?
Hello, my name is***** am a qualified lawyer and it is my pleasure to assist you with your question today. I presume there was no requirement to give up your shares n termination of employment?
Customer: replied 2 years ago.
No, they were not stock options. So I indeed retain my shareholding even after I left my employment.
Thank you I will pass you on to a colleague of mine who will be better placed to assist you as this is slightly outside of my area. Please do not reply in the meantime, thank you
Hi, Thank you for your question and welcome. My name is ***** ***** my colleague has asked me to assist you. I am a company law expert. I am afraid as a minority shareholder (without a shareholders agreement) you are somewhat exposed. While they cannot just dilute you to raise money for no reason, if they wanted to justify a further share issue it would not be too difficult. The protection you have is under S.994-S.996 of the Companies Act 2006 - it is called a protection against unfair prejudiced of minority shareholders. If they were deliberately prejudicing you for no reason other than to dilute you out, you would have to go to court to get proper value for your shares. The best thing you can do is (i) get them to agree a shareholders agreement with you so your shares are protected by a contract or (ii) Sell them your shares now and make a clean break. On your other point if they were to deliberately divert business away from the company this would be a breach of the Companies Act (S.172 - S177) - again your options would be limited but you could potentially sue them on behalf of the company under S.260 (derivative action). I look forward to hearing from you. Kind regards AJ
Customer: replied 2 years ago.
Thanks Alex. I do also have a shareholder's agreement. But I do not remember this being explicit in terms of obligations. Does this make a difference or the situation remains as you have described above?
Hi, Thank you. Yes you still have the protections I have highlighted above, but a Shareholders Agreement may give you added protection. Does it contain any pre emption rights or restrictions on sales of shares?P.s if you have a moment I would be most grateful if you rate my answer.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3844
Experience: Solicitors 2 years plus PQE
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