I am an investor in a chain of shoe stores in the UK. It is a family owned business, I am not a part of the family, I am an outside investor who came in to help the family out. I have now heard rumours that the other shareholders are trying to weaken my influence in the company by changing the rights associated with my shares.
I already have a different type of share from the rest of the shareholders, but I am know what rights I have. I am quite worried about what they could change my rights to become. I had no idea that a company could even change the rights of shares after a shareholder had purchased the shares.
Can you please explain how can a company change the rights associated with a certain group of shares?
The Answer from Solicitors Online
Changes to the rights of a type of share and its shareholder in a company
The articles of association of a company may permit the variation of the rights of a type of share in a company, in accordance with section 630(2)(a) of the Companies Act 2006. This is one way in which a company can increase or decrease the rights of shareholders who own a particular type of share.
If the articles of association of a company do not permit a company to change the rights of a type of share in the company, the rights of the share can only be changed if 75% of the existing shareholders who own that particular type of share agree with the proposed changes in accordance section 633 of the Companies Act 2006. This prevents shareholders from having their rights in a company changed unfairly and without prior warning.
What is regarded as a change in the rights of a share?
Issuing more of an existing type of share, will be regarded as making a change to the rights of that type of share, as the newly issued shares will dilute the voting power of the older shares and their shareholders.
If you need legal advice online regarding the shares of your company, you can speak to our Solicitors online right now.