Shaw v Shaw [1935] 2 KB 113

Facts

  • Shaw v Shaw concerned a family business where disputes arose regarding its management structure.
  • Certain shareholders attempted to control and override the board of directors' actions, particularly relating to asset sales and profit allocation.
  • Dissenting shareholders claimed the board acted improperly and sought judicial intervention to reverse board decisions.
  • The central legal conflict was whether shareholders could direct or assume the board’s management powers.

Issues

  1. Whether shareholders can override or assume the board of directors' authority in managing the company's affairs.
  2. Whether the company's articles of association permitted shareholders to impose specific management decisions on the board.
  3. Whether the separation of powers between directors and shareholders was maintained in the circumstances.

Decision

  • The Court of Appeal affirmed the strict separation of authority between directors and shareholders in company management.
  • The court upheld the board’s exclusive right to manage the company, rejecting the shareholders' attempt to direct specific decisions.
  • It was clarified that management powers under the articles of association are vested solely in the board, not the shareholders.
  • Shareholders may remove directors or alter the articles but cannot intervene in individual management decisions.

Legal Principles

  • The division of powers between shareholders and directors is fundamental in company law.
  • Directors collectively conduct day-to-day management, while shareholders exercise ultimate control through voting rights at general meetings.
  • Shareholders’ ability to intervene in management is limited—they may appoint, remove directors, or amend articles, but cannot direct the board’s decisions.
  • Judicial intervention is only appropriate if directors violate company rules or fail in their duties; exceptions are closely circumscribed.

Conclusion

Shaw v Shaw [1935] 2 KB 113 established that management authority rests exclusively with the board of directors, and shareholders cannot dictate specific business decisions, preserving the structural balance defined by company law and articles of association.

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