When is prejudice to a shareholder “unfair”?

You may have heard the term “unfair prejudice”. You may be involved in a dispute with a fellow shareholder where this term has been mentioned. So what does it mean and in what circumstances does it apply?

If you are a shareholder in a business and you are involved in the day to day running of the business, you will probably be aware that you cannot do anything with the business that will unfairly prejudice the interests of another shareholder. Equally, your fellow shareholders cannot do anything with the business that will unfairly prejudice your shareholding.

The conduct concerned is usually any matter that the board of directors deal with. Examples of prejudicial conduct include allotting new shares meaning that the shareholding of others is diluted or a director who is also a shareholder giving himself a huge bonus or significant salary increase without any consultation or justification. The conduct does not always need to result in direct financial damage to a shareholding. Another usual example is a shareholder who has a right to be included in the day to day management of the company and has been excluded from that.

Whether the prejudice is unfair is not always clear and the Courts consider each case on its facts. There are, however, some matters that the Court will generally consider to be unfair prejudice. These include where there has been a disregard for the terms of a Shareholder’s Agreement or that the company is being managed in a way that is contrary to its Articles of Association.

Sewell Law can assist you with any type of shareholder dispute whether it involves unfair prejudice or not. We aim to avoid litigation where possible and will give you clear legal advice so that you always know where you and your business stand. If Court proceedings are inevitable, we will guide you through the process to give you the opportunity to achieve the best possible outcome whether that is by way of settlement or otherwise. We are Solicitors in Hull and East Yorkshire with many years’ experience in shareholder and contract disputes.