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What is a company major transaction?

by | 26 May 2021 | Business Law, Litigation

A company is owned by its shareholders. However, what many people don’t realise is that shareholders actually have little power to make decisions for the company.

It is the board of directors who have the power to manage the company’s day-to-day operations. Therefore, minority shareholders usually don’t have the ability to influence the company’s actions.

However, there is one exception to this general rule. Under the Companies Act, shareholders do have the right to approve, or reject, a major transaction planned by the board.

A major transaction a transaction where the company buys or sells assets with a value greater than 50% of the company’s total assets.

The value of the company’s total assets is based on its market value. In addition, the calculation is based on the company’s total gross asset value without deducting liabilities.

Each major transaction must be approved by a special resolution of shareholders, which requires approval from shareholders who hold an aggregate of 75% of the shares.

If the directors proceeded with the major transaction without shareholder’s approval, then the shareholders may apply to the Court for an injunction to stop the transaction. Alternatively, the shareholders may apply to the Court to order compensation or a buy-out because the unauthorised major transaction is deemed to be unfairly prejudicial to the shareholders.

If you have any questions about the company governance, speak to us at Capstone Law, and we would be happy to assist you. 

Kenneth Sun

Kenneth Sun

Partner & CEO

Kenneth is the founding partner of Capstone Law.  Kenneth has a MPhil from the University of Cambridge, and he was also awarded the prestigious Dean’s Academic Achievement Award for graduating from the University of Auckland law school in the top 5% of his class. Kenneth has worked at some of the best law firms in the country before starting Capstone Law.

kenneth@capstonelaw.nz

+64 9 555 0386