What is minority protection?
Minority protection is the collective name for the Companies Act rules that protect smaller shareholders in a company. Because decisions are ultimately controlled by the majority, safeguards are needed to stop a majority owner from taking decisions that disadvantage the minority. The protection is especially important in unlisted companies, where shares are hard to sell if you are unhappy.
Examples of protection
- Qualified majority is required for certain decisions, such as amending the articles of association.
- The equality principle and the general clause prohibit decisions that give some owners an undue advantage at others' expense.
- Minority dividend lets owners with at least one-tenth of the shares force through a certain minimum dividend.
- Special examination and a minority auditor can be requested by a minority to scrutinise the board.
Why it matters to you
As a smaller owner in an unlisted company, you can rarely vote your own proposals through, but minority protection gives you basic rights and insight. Shareholders' agreements often add to the statutory protection with specific rules, such as tag-along on a sale.