You built the business together the late nights, the personal loans to cover payroll, the clients won side by side. Then things changed. Your partner stopped sharing financial statements, voted themselves a director's salary while declaring no dividends, registered a competing company, and quietly moved clients across.
If any part of this sounds familiar, you are not alone. Shareholder disputes are among the most bitter and common commercial conflicts in Kenya, and the shareholders who suffer most are usually those who don't know their rights.
Here is what the law gives you under the Companies Act, 2015, and how to fight back strategically.
Where Shareholder Disputes Come From
The patterns are remarkably consistent:
- Exclusion from management despite a significant stake and legitimate expectations of participation
- Misappropriation of company funds, assets, or opportunities
- Decisions made without notice or proper meetings; contracts signed, assets sold, directors appointed in your absence
- No dividends while directors pay themselves generous salaries and allowances
- Dilution of your shareholding through preferential new issues to allies
- Deadlock in a 50/50 company where neither side can pass a resolution
Your Rights Under the Companies Act, 2015
As a shareholder, the Act gives you enforceable rights to:
Information
- Inspect company records, including registers of members and directors.
- Receive financial statements for each financial year.
- Inspect minutes of general meetings.
If your company has never shown you financials, that silence is itself a red flag and often the first thing a court orders disclosed.
Participation
- Receive proper notice of general meetings.
- Attend, speak, and vote at meetings (subject to your share class rights)
- Requisition a general meeting in defined circumstances, including to remove directors
Economic Rights
- Receive dividends when properly declared and challenge resolutions that divert profits to directors.
- Share in surplus assets on winding up.
Fair Treatment
The overarching principle: majority power is a trust, not a licence. Those who control a company must exercise that power for proper purposes and in the interests of the company as a whole, not purely to oppress a minority.
Directors' Duties: The Other Side of the Coin
Most shareholder disputes are really disputes about director conduct. Under the Companies Act, directors owe the company:
- A duty to act within their powers (the constitution and proper purposes)
- A duty to promote the success of the company
- A duty to exercise independent judgment
- A duty to avoid conflicts of interest including competing businesses and diverted opportunities
- A duty not to accept third-party benefits conferred by reason of office
- A duty of care, skill, and diligence
A director who diverts company clients to a personal company or approves self-dealing transactions breaches these duties, and the remedies run to the company: accounting for profits, restoration of assets, and damages.
Your Remedies: From Softest to Strongest
1. Internal Resolution
Review the articles of association and any shareholders' agreement. Many disputes resolve through:
- A properly convened general meeting and negotiated resolutions
- A negotiated buy-out of one party's shares
- Mediation increasingly effective where the relationship, not just the money, matters
This is almost always the cheapest path and courts increasingly expect parties to have tried it.
2. Derivative Claims
Where directors have breached their duties and because the wrongdoers control the company the company itself will not sue, the Companies Act allows a shareholder to bring a derivative claim on the company's behalf, with the court's permission.
This is the correct tool when the wrong is to the company: misappropriated funds, diverted opportunities, self-dealing. Any recovery goes to the company, which, properly governed, is also yours.
3. Unfair Prejudice Relief
The Act also provides relief where the company's affairs are being conducted in a manner that is unfairly prejudicial to shareholders' interests. This covers the classic grievances:
- Exclusion from management contrary to legitimate expectations
- Diversion of profits through directors' remuneration
- Oppressive conduct by the majority
The most common remedy is a buy-out of the petitioner's shares at fair value, often the cleanest exit from a broken partnership.
4. Just and Equitable Winding Up
Under the Insolvency Act framework, a shareholder may petition to wind up a company on the ground that it is just and equitable, typically where there is a deadlock, a collapse of trust, or the company was formed on a basis that has broken down.
This is the nuclear option, and precisely for that reason, it is powerful leverage. Few controlling shareholders will risk liquidation of a functioning business.
What Decides These Cases
Courts decide on evidence and documentation: the articles, the shareholders' agreement, board and meeting minutes, financial records, correspondence, and the parties' course of conduct over time.
If you are being excluded or suspect misconduct:
- Lawfully assemble your records now; you are entitled to the information rights above.
- Preserve emails, messages, and transaction records.
- Do not sign anything or resignations hastily; rushed resignations and share transfers destroy leverage.
Prevention: The Shareholders' Agreement Most Businesses Never Signed
The painful truth is that most shareholder disputes are preventable. A well-drafted shareholders' agreement should cover:
- Reserved matters requiring supermajority or unanimous consent: major borrowing, asset sales, new share issues, director appointments
- Board composition, remuneration, and removal, including how deadlocks at board level are broken
- Dividend policy: when and how profits are distributed
- Transfer restrictions and valuation: what happens when a shareholder exits, dies, or becomes disabled; how shares are valued and bought out
- Deadlock mechanisms: negotiation, escalation, mediation, buy-sell provisions, or agreed exit.
- Non-compete and confidentiality obligations protecting the company from its own owners
- Dispute resolution steps before litigation
The Bottom Line
A minority shareholder is not powerless; the Companies Act, 2015 gives real and practical teeth through information rights, derivative claims, unfair prejudice relief, and the threat of winding-up. But outcomes depend on moving quickly, preserving evidence, and choosing the right remedy for the wrong.
Is a business partner abusing company power? Contact Anyega Osiemo & Co. Advocates for a confidential assessment of your rights, your options, and the strongest path forward.
Disclaimer: This article is general legal information, not legal advice. For guidance on your specific situation, book a consultation with our advocates.
