Learn what counts as unfair prejudice under Section 994 Companies Act 2006, including common examples and how shareholders can take legal action.

What Counts as Unfair Prejudice in a Shareholder Dispute?

Jonathan Lea March 23, 2026

Unfair prejudice occurs when a company’s affairs are conducted in a way that harms a shareholder’s interests and is considered unfair under Section 994 of the Companies Act 2006. Common examples include exclusion from management, misuse of company funds, and unfair dilution of shares. Shareholders—particularly minority shareholders – can apply to the court for remedies such as a share buy-out or regulation of the company’s affairs.

Why Shareholder Disputes Can Amount to Unfair Prejudice Under Section 994

Shareholder disputes can arise in many different ways. In some cases, disagreements between business partners are simply commercial differences that can be resolved through discussion or negotiation. In other situations, however, the way a company is being run may cross the legal line into what the law calls “unfair prejudice.”

Under Section 994 of the Companies Act 2006, a member (shareholder) can ask the court to intervene if the company’s affairs are being conducted in a way that is unfairly prejudicial to their interests as a member of the company. This is a powerful remedy designed to protect shareholders, particularly minority shareholders, from being treated unfairly by those who control the company.

Understanding what actually counts as unfair prejudice is not always straightforward. The concept is deliberately broad and flexible, allowing courts to respond to a wide range of misconduct or unfair behaviour within a company.

This article explains what unfair prejudice means in practice, the types of conduct that may give rise to a claim, and what steps shareholders can take if they believe they are being treated unfairly.

What Does “Unfair Prejudice” Mean Under the Companies Act 2006?

Section 994 allows a member (shareholder) to petition the court if:

The company’s affairs are being conducted in a manner that is unfairly prejudicial to the interests of its members, or some part of them. This means the way the business is being run is harming shareholders and doing so in a way that falls below the standards of fairness expected within the company.
An actual or proposed act or omission of the company would have that effect. In other words, the court can intervene not only when harm has already occurred but also when a proposed action would unfairly damage shareholder interests.

In practical terms, the law recognises that shareholders should be treated fairly by those who manage or control the company. If the actions of directors or majority shareholders harm a shareholder’s interests in a way that is both prejudicial and unfair, the court may intervene.

Two elements must normally be present.

Prejudice, meaning the shareholder’s interests have been harmed in a real and meaningful way. This may involve financial loss, exclusion from participation in the business, or dilution of rights.
Unfairness, meaning the conduct falls below the standards of fairness expected in the circumstances. The court considers what was reasonably expected within the company rather than applying a purely technical legal test.

Not every dispute or disagreement will meet this threshold. The court will examine the specific facts of each case and consider the expectations that existed between the shareholders when the company was formed and operated.

Who Can Bring an Unfair Prejudice Petition?

An unfair prejudice petition can be brought by any member (shareholder) of the company, regardless of the size of their shareholding, provided they are registered as a member of the company.

This is particularly important for minority shareholders who may otherwise have limited influence over company decisions. In many businesses, majority shareholders or directors have the power to control how the company operates, which can create opportunities for abuse if relationships break down.

Typical claimants include:

Minority shareholders excluded from management
In many privately owned, quasi-partnership style companies, shareholders join the business with the understanding that they will participate in its management. When a minority shareholder who has historically been involved in running the company is suddenly removed as a director or excluded from decision-making without justification, this may amount to unfair prejudice if it undermines the legitimate expectations on which the business relationship was founded.
Shareholders affected by misuse of company powers
Majority shareholders or directors may sometimes use their control of the company to pass resolutions or make decisions that benefit themselves while harming other shareholders. Where those decisions are made improperly or without proper regard for minority interests, the court may consider whether unfair prejudice has occurred.

Common Examples of Unfair Prejudice

Although the law does not provide a fixed list, certain types of behaviour frequently give rise to unfair prejudice claims.

Excluding a shareholder from the management of the company
In many privately owned, quasi-partnership style companies, shareholders expect to be involved in running the business. Where a shareholder has always participated in management but is suddenly removed from decision-making or from the board without a legitimate justification, the court may consider whether this exclusion is unfair in light of the original understanding between the parties.
Failure to pay dividends while majority shareholders benefit financially
Some disputes arise where majority shareholders control dividend policy and refuse to distribute profits while continuing to extract value from the company in other ways. For example, directors who are also majority shareholders may pay themselves substantial salaries or bonuses while minority shareholders receive no return on their investment. Because dividend policy is generally a matter for directors’ commercial judgment, a refusal to declare dividends will only amount to unfair prejudice where, in context, it forms part of a broader pattern of conduct that unfairly disadvantages particular shareholders.
Dilution of a minority shareholder’s shares
A company may issue new shares for legitimate commercial reasons, such as raising capital for expansion. However, if new shares are issued primarily to dilute the percentage ownership or voting power of a minority shareholder, the court may closely scrutinise the purpose of the share issue.
Mismanagement or misuse of company assets
Directors owe statutory duties to act in the best interests of the company. If they misuse company assets, divert business opportunities, or otherwise act for personal benefit rather than the company’s interests, shareholders may suffer financial harm. Such conduct may also amount to a breach of directors’ duties, but an unfair prejudice petition may provide a more practical remedy for affected shareholders, particularly where they wish to exit the company.
Failure to provide financial information or transparency
Shareholders are entitled to certain information about the company’s affairs. Persistent refusal to provide accounts, financial reports or explanations of significant business decisions can raise serious concerns, particularly where the lack of transparency may conceal conduct that benefits certain shareholders at the expense of others.

Each situation is fact-specific. The court will consider not only the conduct itself but also the overall relationship between the shareholders and the expectations that existed when the company was formed.

The Importance of “Legitimate Expectations”

One of the key factors courts consider in unfair prejudice cases is the concept of legitimate expectations.

This refers to the reasonable expectations shareholders had, based on the company’s constitutional documents, any agreements between them, and the way the company has actually been run in practice.

These expectations may arise from:

The company’s articles of association
Shareholder agreements
Informal understandings between business partners
The established way the company has historically been managed

In many owner-managed companies, shareholders expect to participate in management, share in profits, and be treated fairly in decision-making. When those expectations are disregarded without good reason, the court may conclude that the conduct is unfairly prejudicial.

When Disagreements Do Not Amount to Unfair Prejudice

Not every shareholder dispute qualifies as unfair prejudice.

Business relationships can break down for many reasons, and courts are generally cautious about interfering in commercial decisions unless the conduct clearly crosses the threshold of unfairness.

Situations that may not amount to unfair prejudice include:

Ordinary commercial disagreements
Shareholders may legitimately disagree about business strategy, expansion plans or financial decisions. A difference of opinion about how the business should be run does not automatically amount to unfair prejudice if the decision has been taken properly.
Decisions made in accordance with company rules
If a decision has been taken lawfully in line with the company’s articles and any shareholder agreements, it will usually be harder to show unfair prejudice. However, this may change if there is evidence of improper motive, misuse of powers, or a departure from the understandings on which the company relationship was based.

Understanding where the legal boundary lies often requires a careful review of both the company’s legal documents and the practical history of the business relationship.

What Remedies Can the Court Order?

If the court finds that unfair prejudice has occurred, it has wide powers to grant remedies designed to resolve the dispute fairly.

The most common outcome is an order requiring one shareholder to buy out another’s shares.

Court-ordered share buy-out
In many cases, the court will order the majority shareholders to purchase the minority shareholder’s shares at a fair value. The court will determine the appropriate valuation basis, which may include considering whether or not a minority discount should apply.
Regulation of the company’s future conduct
The court may make orders regulating how the company’s affairs should be conducted in the future. This can include requiring greater transparency or restricting certain actions by directors or majority shareholders.
Setting aside company decisions
Where a particular company decision has caused the unfair prejudice, the court may set it aside or require corrective action.

In rare circumstances the court can also make alternative orders affecting the company’s future, including effectively bringing the business to an end. In practice, however, the most common remedy is a share buy-out allowing the affected shareholder to exit the company at a fair value.

Risks, Costs and Time Considerations

Bringing an unfair prejudice petition is a serious step. These cases are typically heard in the High Court and can be complex.

Shareholders considering legal action should be aware of several practical factors.

Legal costs can be significant
Shareholder disputes often involve detailed financial evidence, expert valuations and extensive documentation. While many disputes settle before reaching trial, the cost of preparing and advancing a claim can still be considerable.
Disputes can affect the ongoing business
Litigation between shareholders can place significant strain on the company itself. Relationships within the business may deteriorate further, which is why early negotiation or mediation is frequently explored.
Delay can create practical and legal difficulties
There is no strict statutory limitation period for bringing an unfair prejudice petition. However, excessive delay can affect the court’s willingness to grant certain remedies and may make the financial and factual position more difficult to untangle.

Early advice can help shareholders assess the strength of their position and consider whether negotiation, mediation or litigation is the most appropriate course.

Practical Steps If You Suspect Unfair Prejudice

If you believe you are being treated unfairly as a shareholder, it is important to approach the situation carefully.

Review the company’s legal documents
The company’s articles of association and any shareholder agreement often determine how decisions should be made and what rights shareholders have. Understanding these documents is essential before taking further action.
Gather relevant evidence
Financial records, board minutes, correspondence and company reports can all help clarify what has happened within the business. Maintaining clear records may be crucial if the dispute later develops into formal proceedings.
Seek legal advice at an early stage
Shareholder disputes can escalate quickly once relationships break down. Early advice can help determine whether the conduct may amount to unfair prejudice and what practical options are available to resolve the situation.

In many cases, disputes can be resolved through negotiation once the legal position is clearly understood.

How the Jonathan Lea Network Can Help

Shareholder disputes are rarely just legal problems. They often involve years of business relationships, financial investment and personal commitment. When those relationships break down, it is important to approach the situation with both legal expertise and commercial understanding.

The Jonathan Lea Network advises shareholders, directors and businesses across England and Wales on English law company disputes, including unfair prejudice petitions under Section 994 of the Companies Act 2006.

Our team can assist with:

Assessing whether conduct may amount to unfair prejudice
Reviewing shareholder agreements and company documents
Negotiating shareholder exits or share buy-outs
Representing clients in High Court unfair prejudice claims where necessary

Where possible, we aim to resolve disputes efficiently and commercially, helping clients protect both their investment and the future of the business.

If you believe you may be experiencing unfair treatment as a shareholder, seeking early advice can often make a significant difference. A clear understanding of your rights and options can help you decide the most appropriate way forward.

To discuss your situation confidentially, you can contact the Jonathan Lea Network for practical, strategic advice on resolving shareholder disputes.

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. Following an initial discussion, we can provide a clear scope of work, a fee estimate (or fixed fee where appropriate), and confirm any information or documentation we would need to review.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.