Saving Minority share holders

1. COMPANY LAW
PRESENTATION
MS SHAKARI MURUGANDAN

2. TASK
“Majority of members of company are in an advantageous position to run the
company according to their command, the minority of share holders are often
oppressed”
Discuss the above fact based on the rule of FOSSV HARBOTTLE

3. Introduction
• In the day-to-day working of a company, certain decisions need to be taken
regarding the management of the company and these decisions are generally
taken by the majority members. In this process of decision-making, there may
arise certain occasions wherein the interests of the majority shareholders may
come in conflict with that of the minority shareholders.
• In such a case, if the decisions taken, are not in the larger interest of the
company as a whole, but only caters to the interest of one particular group,
the minority group whose interest may have been violated can raise its voice
against such an action.

4. Minority share holders
• A minority shareholder is defined as a shareholder who does not exert control
over a company.The majority shareholders almost always exert an absolute
control over the company, its management, its board of directors, and so on.
• Minority shareholders and its efficiency, in order to verify if the law suffices
for their protection, or if the minority shareholders need an ethical
protection, which has a much wider scope.

5. CASE FACTS
• In Foss v Harbottle (1842), two shareholders commenced legal action
against the promoters and directors of the company alleging that they had
misapplied the company assets and had improperly mortgaged the
company property.
• The Court rejected the two shareholders' claim and held that a breach of
duty by the directors of the company was a wrong done to the company for
which it alone could sue. In other words, the proper plaintiff in that case
was the company and not the two individual shareholders.

6. This rule is derived from two general legal principles of
company law,
A company is a legal entity separate from its shareholders.
The Court will not interfere with the internal management of
companies acting within their powers. Where an ordinary majority
of members can ratify the act, the Court will not interfere.
This simply means, if the majority can ratify an act, the minority
cannot sue.

7. Exceptions to the rule in Foss v Harbottle
• Ultra vires or illegal acts
• Transactions requiring special majorities
• Acts that infringe a shareholder’s personal rights
• Acts of fraud against the minority on behalf of the persons controlling the
company

8. Why Minority Shareholders Seeking Remedies ?
• In unethical companies, the minority shareholders will always lose in the long
run.
• Unethical managers tend to work on the verge of the law, finding loopholes,
and getting the legal advice of the best lawyers, in cases of wrongdoing to the
minority shareholders.
• Boards of Directors and executives of companies tend to safeguard primarily
the interests of the majority or controlling shareholders, who have appointed
and remunerate them.
• Independent Directors, who are appointed by the executives, decisions of their
committees, and fairness opinions that they order, are in many cases unreliable
to minority shareholders, as they tend to comply with the opinions of the
majority shareholders.

9. Types of Action that can be commenced by
Minority Shareholders
• There are 3 types of actions that Minority shareholder(s) can bring:
• Personal Action
A personal action may be commenced by a member to enforce a right due to
him personally where such rights have been abused by an act .
An example of personal action is where a shareholder commences an action to
enforce the term of a contractual obligation with the company.

10. • Representative Action
A representative action is commenced where an individual member’s right has
been infringed, and the infringement affects other members in the company,
the appropriate action will be a representative action
Example : A member will be suing the company on behalf of himself and other
aggrieved members
• Derivative Action
A derivative action is when minority members/shareholders bring an action in
the name of the company to correct the wrong done to a company by
majority/controlling shareholders.

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THANKYOU