John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113

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Facts

  • Peter, John and Percy Shaw had a family company together called John Shaw & Sons (Salford) Ltd (Shaw & Sons). Peter, John and Percy were shareholders.
  • Eventually, the family had a disagreement over money which was owing to Shaw & Sons – this resulted in a settlement whereby John and Peter resigned as directors and divested themselves from taking part in the financial affairs of the company.
  • Independent directors would also be appointed to Shaw & Sons to take control over the company’s affairs.
  • The new directors required Peter and John to pay money to Shaw & Sons – Peter and John refused.  The company commenced proceedings.
  • Just before the hearing, a general meeting was called where (as majority shareholders) John and Peter procured a resolution to discontinue the proceedings.
  • Shaw & Sons and Percy argued that this resolution was ineffective.

Issues

  • Was the resolution procured by the majority shareholders effective?

Held

  • The English Court of Appeal held that the resolution was ineffective and prevented it from being used to circumvent the company’s constitution.
  • Shareholders cannot usurp the powers of the directors – shareholders can only alter the exercising of power by altering the articles of association or constitution and trying to prevent certain directors from being appointed.

Quotes

“A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.”


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