Shareholder agreement

Shareholder agreement is agreement between the shareholders themselves, either between all of them, or just between some of them.

Cases law suggest that the courts are willing to to enforce share agreements.

For example, in Puddephatt v Leith (1916) the court compelled a shareholder to vote as it was agreed in a shareholders' agreement.

However if it is going against the provision under Companies Act, for example an agreement not to alter the article of association, it would not be enforceable (Punt v Symons & Co Ltd (1903)). 

In Bushell v Faith (1970), the article of association contained a provision whereby in the event of a resolution to remove a director’s shares in the company would be multiplied by three (carry three votes each). This was going against the Companies Act 1948, which allowed a company to remove a director by simple resolution. House of Lords held that the provision in the AA was not inconsistent with the statutory power and was therefore valid. The statute only specified the type of resolution needed to remove a director but completely silent on the matter of how the company allocated voting rights for such provisions. It was submitted that the other shareholders could still remove the director if they have enough votes.

In Russell v Northern Bank Development Corporation Ltd (1992), there was a shareholders’ agreement not to increase the share capital of the company without the agreement of all the parties to the share holders’ agreement. This agreement was going against the Companies Act 1985, which allowed companies to increase their share capital if their articles contain an authority. The article of association of the company did provide such an authorization. House of Lords held that this agreement was not enforceable against the company because of the inconsistency with the statutory power. However, it could take effect as a personal contract and enforce against the other shareholders.   

You can read the majority rule and overview of shareholder's remedies here: http://thewallyeffect.blogspot.my/2017/10/the-majority-rule-and-shareholders.html

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Please do not take this note as the sole and only sources to study. It is only a guidance which may assist you in drawing out the full picture of the particular area of law. It is never meant to be a comprehensive text.

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