united-kingdom contract-law shareholders
Whose instructions should be followed in a dispute - majority shareholder vs company director? (UK)
<p>Many years ago, Contractor Fred signed a general works contract with John Smith, owner and sole director of Small Company Ltd. The contact was agreed directly between Fred and John (as opposed to being 'on behalf of' Small Company Ltd).</p>

<p>5 years later, Small Company Ltd sold a minority shareholding (say 25%) to Tom Jones, who came on board as a second director. </p>

<p>1 year later, John Smith resigned as a director but still has the majority shareholding of 75%.  </p>

<p>Tom Jones and Fred Smith are now in a dispute and Contractor Fred is being given conflicting instructions.  </p>

<p>Based on the factors below, do either Tom or John clearly have greater authority in matters pertaining to Contractor Fred?</p>

<ol>
<li>The Directorship of Tom (vs the non-director John)</li>
<li>The majority shareholding of Fred (vs the minority shareholding of Tom)</li>
<li>The contract signed with John directly (as opposed to with the Small Company Ltd)</li>
</ol>

<hr>

<p>I have looked at <a href="https://law.stackexchange.com/questions/8908/in-the-event-of-conflicting-instruction-given-by-an-agent-of-a-company-whose-au">this question</a>, which indicates that the contract details should be followed. However the contract above was a general works contract of X hours per week, not specifiying the exact work to be done. </p>

<p><strong>Update</strong></p>

<p>Fred has always been paid from the Ltd Company account, which is managed day to day by John Smith</p>

<p>The shareholders can change who is the company director, but the company director runs the company (until he or she resigns or is forced to sign by the shareholders). So the company director is who has the say what happens in the company. </p>

<p>If the contract is between Fred and John Smith directly, then I would expect John Smith to give the orders and to pay Fred. However, Tom is company director, so he can order Fred to stay off the company premises. He can't order Fred what to do, since there is no contract between Fred and the company, and the company won't pay Fred if it doesn't want to - it's up to John Smith to pay Fred from his own pocket. </p>

<p>The whole setup is highly unusual. I would assume that the situation is unsatisfactory for everyone involved, so likely they will agree that the contract between John Smith and Fred is cancelled, that there is a new contract between Small Company Ltd and Fred, and from then on the company director gives the orders. </p>
