The end of the Shareholder Rule: what does it mean for businesses?
A recent decision has changed the way companies can deal with legally privileged advice in disputes with shareholders. For business owners, directors and family companies, the practical consequences are worth understanding.
A long-standing rule, now abolished
For many years, there was a rule in English law known as the ‘Shareholder Rule’. In broad terms, it meant that a company could not usually rely on ‘legal advice privilege’ to keep legal advice confidential from its own shareholders during litigation where there is a dispute between the company and those shareholders.
The rule was based on an old idea that shareholders had effectively paid for the legal advice because company funds had been used to obtain it. That didn’t sit comfortably with modern company law, where a company is treated as a separate legal person from its shareholders.
In Jardine Strategic Limited v Oasis Investments II Master Fund Ltd and others (No 2) [2025] UKPC 34, the Judicial Committee of the Privy Council rejected the Shareholder Rule. Importantly, the Board gave a direction that the decision should be treated as applying in England and Wales. The result is that companies can now, in principle, assert legal professional privilege against shareholders.
Does this mean shareholders are entitled to less information?
Not exactly.
The decision does not remove shareholders’ statutory rights to information. Shareholders will still be entitled to receive the information that company law, the company’s articles of association, any shareholders’ agreement, or a court order requires to be provided. Annual accounts, notices of meetings, written resolutions and other formal documents will still need to be handled properly.
What has changed is narrower, but important. A shareholder can no longer say, simply because they are a shareholder, that they must be allowed to inspect the company’s privileged legal advice in a dispute with the company.
This is particularly relevant where the company has taken legal advice about a sensitive decision, a possible claim, a restructuring, a valuation, an internal dispute, or the conduct of directors.
Practical implications for business owners and directors
For directors, the decision provides reassurance that legal advice obtained for the company can remain confidential, even if a shareholder later challenges the decision to which the advice related.
That may encourage boards to seek legal advice earlier and more openly. Directors should be able to discuss risks, weaknesses and possible outcomes with their lawyers without assuming that those discussions will automatically be disclosed to a disgruntled shareholder who asks for the information later on.
However, businesses should not treat the case as permission to be secretive. Shareholders are still owners of shares in the company, even though they do not own the company’s assets directly. They may still be entitled to information through other routes, and withholding information without good reason can increase suspicion and make disputes harder to resolve.
The key distinction is between ordinary business information and privileged legal advice. Management accounts, dividend decisions, board minutes, valuation evidence and shareholder communications may all need to be considered on their own facts. Legal advice privilege is not a blanket label that can be placed on every document connected with a difficult decision.
Does it apply to businesses of all sizes?
The principle is not limited to large, listed companies or international corporate groups.
It can apply to companies of any size, from substantial trading groups to small private companies with only two or three shareholders. In practice, it may be most noticeable in owner-managed businesses, where the same individuals may wear several hats: shareholder, director, employee, family member, lender or guarantor.
Small companies often operate informally. Decisions are discussed over the phone, by email, at home, or around a boardroom table that also happens to be the kitchen table. When relationships are good, that may work well. When relationships break down, the absence of clear records and agreed information rights can quickly become a problem.
For that reason, smaller companies should not assume that this decision is only relevant to City litigation. It affects the basic question of what a company may keep confidential when a shareholder dispute arises.
Family businesses: a particular pressure point
Family businesses can be especially vulnerable to misunderstandings about information rights. A family member may feel that, because they helped build the business or hold shares inherited from a parent, they are entitled to see everything. The legal position is often more nuanced.
A shareholder who is not a director will usually have different rights from a shareholder who sits on the board. A family member working in the business may have access to information as an employee, but that does not necessarily mean they are entitled to every document as a shareholder. Equally, directors must remember that they owe duties to the company, not simply to the family members with whom they are closest.
The abolition of the Shareholder Rule may help a company protect privileged advice during a family dispute, for example where the board has taken advice about removing a director, valuing shares, responding to an unfair prejudice claim, or negotiating an exit.
But confidentiality alone rarely solves a family business dispute. If shareholders feel shut out, the emotional and commercial consequences can be serious. A well-drafted shareholders’ agreement, clear articles of association and sensible communication procedures are often more effective than relying on arguments after the relationship has deteriorated.
When might information previously have been withheld?
There are many situations where companies may historically have taken a cautious or inconsistent approach to sharing information with shareholders.
Examples include a minority shareholder asking to see advice about a proposed share issue, a departing shareholder requesting documents used to calculate the value of their shares, or a family member asking for advice obtained before a change in management. There may also be requests for legal advice connected with dividend decisions, director remuneration, the sale of business assets, refinancing, restructuring, or allegations that directors have breached their duties.
Before Jardine, a company facing litigation from a shareholder might have been concerned that privileged legal advice created before the dispute became hostile could have to be disclosed. That concern has now been significantly reduced.
That does not mean every request can be refused. The company should still ask: what type of information is being requested, what rights does the shareholder have, is the document actually privileged, has privilege been waived, and would refusal make the dispute worse?
What should companies do now?
Businesses should review how they handle shareholder information requests, particularly where there is tension between shareholders or where a major transaction is being considered.
It is sensible to keep privileged legal advice clearly separate from commercial papers, board packs and general correspondence. Internal emails should be written on the assumption that they may later be reviewed in detail. If legal advice is being sought, the purpose of the communication and the identity of the client should be clear.
Companies should also check whether their articles or shareholders’ agreement give particular shareholders enhanced rights to information. If they do, those contractual rights may be just as important as the general law of privilege.
Where a dispute is already developing, early advice can help identify what must be disclosed, what can properly be withheld, and how to communicate the company’s position without inflaming matters further.
How Fraser Dawbarns can help
Shareholder disputes can be disruptive, costly and personal. They can also move quickly, particularly where there are concerns about access to information, control of the company, dividend policy, valuation, or the future direction of the business.
Fraser Dawbarns advises company directors, business owners and shareholders on corporate and commercial matters, shareholder agreements and shareholder disputes. If you are unsure what information should be shared, or what can properly remain confidential, taking advice at an early stage can help protect both the business and your position within it.
If you would like individual advice please contact any of our offices or complete an enquiry form and we will be in touch.
This article is intended as general information only and should not be treated as legal advice. Specific advice should be taken on the facts of your situation.
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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.