Meaning
Statutory provision in the United Kingdom governing the variation of rights attached to different classes of shares. The section 125 uk companies act requires that any change to class rights must be approved by a specific majority of the holders of those shares. This protection prevents a majority of the total shareholders from removing the special privileges of a minority group through a general vote.
Approval Threshold
Consent must be obtained in writing from holders of three quarters of the nominal value of the issued shares of that class. Alternatively, a special resolution passed at a separate meeting of the class holders satisfies the requirement of the section 125 uk companies act. This mechanism ensures that the economic and control terms of an investment cannot be altered without the participation of the affected parties.
The threshold acts as a shield for preferred investors during a restructuring or a change in the capital structure.
Class Definition
Rights are considered class rights if they are attached to shares rather than to an individual in a personal capacity. Examples include preferential dividends or enhanced voting power. The statutory process applies whenever the company seeks to amend its articles to diminish these particular entitlements.
Minority Protection
Holders of at least fifteen percent of the issued shares of the class may apply to the court to have a variation cancelled. Such an application must be made within twenty-one days of the consent being given or the resolution being passed. The court will disallow the change if it is satisfied that the variation would unfairly prejudice the members of the class.
