Disputes about your rights as a proprietary company shareholder - video transcript

Transcript of video about disputes about your rights as a proprietary company shareholder, presented by Francis, ASIC's Misconduct and Breach Reporting team, uploaded 30 June 2014. 

What do these disputes involve?

Owning shares in a proprietary company gives you certain rights.

Disputes arise when the company fails to recognise these rights, and can be about:

• accessing the company register
• lack of general meetings
• the company acting contrary to the interests of its members
• company members bringing legal action against the directors.

The important thing to remember here is that the rules which govern how a company operates are contained in a document called the constitution.

The constitution acts as a contract between the company, its directors and its shareholders.

If someone breaches the rules of a company’s constitution, the other company directors or shareholders can try to resolve the matter internally or take the dispute to court.

The law also grants rights to members – for example, the right to inspect the company register free of charge and obtain copies of it and, in certain circumstances, the right to request directors hold a meeting of members of the company.

By law shareholders or members with at least 5% of the votes in a small proprietary company can:

• direct the company to prepare and circulate financial and director’s reports
• direct the company hold a general meeting
• give the company notice of a resolution they propose to move at a general meeting.

There are conditions on how you should make these directions, so you should seek legal advice or review the relevant legislation.

What are my options?

The first step you should take is to write to the company outlining your request as an entitled shareholder of the company.

If you have contacted the company to try to resolve the matter and remain dissatisfied with their response, you can also talk to a legal adviser about what you should do next.

In some serious cases, if members feel that the directors are not performing their duty to the company, they can start legal action in a court on behalf of the company.

A court can also make orders requiring the company to act in accordance with its constitution, or to prevent a company from acting in a way that prejudices its members.

You should always get legal advice before you start an action in court.

What is ASIC's role here?

ASIC doesn’t get involved in disputes about the running of proprietary companies.

Failure by the directors of a proprietary company to comply with a request from its members is not an offence, but it is something that a court can order a company to comply with.

ASIC cannot prosecute a proprietary company or its directors for failing to comply with such requests.