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Owner Not the Same as Member, Rules Court

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

Who can challenge a company’s decision that has been improperly made? This question was the subject of a court hearing recently, when the owners of the ‘ultimate economic interest’ in shares in a company sought to overturn a decision the company had made.

A company is owned by its members. To be a member of a company, the shareholder has to have their membership registered in the register of members of the company – one of the statutory records that must be kept by all companies. No person is a shareholder in law until they are registered as such.

In the case in point, the challenge was brought by people that owned shares in a second company which was a shareholder in the company that had made the initial decision. Their argument was that their indirect shareholdings represented more than 5 per cent of the shares in the company, so a challenge was warranted.

The court rejected the challenge. A member is a person who is shown in the register of members, nothing more or less, and only a member can bring a challenge in such circumstances.

If you have concerns about how a company in which you own shares is being run, or wish to ensure that your corporate governance is up to the mark, contact us for advice.

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