This week on You Legal TV we take a look at what happens when the delicate power balance between shareholders and directors is upset.

In an ideal world this would never happen, but unfortunately that's just not the case. When it does, do you know what to do? And what tools can help you prevent or at the very least, manage such a situation?

Tune in below to find out the answers.

See below for the complete transcript of this episode -

In a perfect corporate environment, directors would be managing a successful business, the company would issue regular healthy dividends, and shareholders would be overwhelmingly happy.

Traditionally, shareholders have accepted their share certificates and put faith in their directors to create a return on their investment. More recently, though, shareholders have become more active in company activities. They are exercising their rights and demanding accountability from directors.

So what happens when there is a conflict between Directors exercising control in the best interests of the Company and Shareholders acting in their own financial interests?

The Company Constitution will be the first port of call if a dispute arises. It should very clearly set out the powers of the directors and detail those powers that vest in the shareholders.

Where a Company Constitution states that the company is to be managed exclusively by the Directors, the Courts have recently indicated that will apply a strict interpretation to this provision.

Shareholders at a General Meeting may not pass resolutions that attempt to act beyond the scope of the powers granted to them under the company’s constitution.

Additionally, shareholders will be prohibited from passing resolutions that attempt to manage the company or exercise a supervisory role.

Under the Corporations Act, directors have a very strict responsibility to act in the best interests of the Company, and attempts by Shareholders to usurp the management role can put directors in breach of their obligations.

Your Company Constitution should be drafted clearly and concisely to avoid doubt. It should also contain provisions intended to settle any dispute that may arise between directors and shareholders. Appropriate dispute resolution clauses have proven to save time, money, and the company's reputation.

If you have any concerns about the Constitution of your company or its governance, please contact the team at You Legal.

What Should I Do Next?

Contact us if you would like further legal advice on Shareholder Activism. Our lawyers at You Legal will be happy to assist you in whatever way we can.

* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.