Proper Balance Between Majority and Minority Shareholder.

Topics: Stock, Corporations law, Corporation Pages: 14 (3692 words) Published: August 2, 2011
North South University

LAW 200
Assignment # 2

Prepared for:
Barrister A.M. Masum Faculty of Business

North South University

Prepared by:
ID NAME 062 528 030 M.Montasir Imran Khan

Section: 02

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“A proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company.”- Explain & Illustrate? 1. Introduction: The basic principal relating to the administration of the affairs of a company is that “the will of the majority is supreme”. The general rule is that the decisions of the majority shareholders in a company bind the minority. 1 In a world that recognizes ‘simple majority rules’, minority shareholders of companies are by default vulnerable to oppression, disregard and unfair treatment by majority shareholders who are in control of the company. Majority shareholders also have certain obligations to minority shareholders in their capacity of controlling the corporation. In certain cases this minority shareholder right can be exercised directly against a shareholder, without having to go against a corporation or through the derivatives action process.2 In such case a proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company. The oppression of minority or mismanagement of a company by majority therefore calls for some remedial action. 3 Today’s minority shareholders come to the corporation with varied attitudes and agendas. Although their shareholder status results from a variety of circumstances, it is important in each case to make their relationship with the corporation and the other shareholders as productive as possible. This

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Ashok, S. (2009-2010).Company law (p.246-248).India:V.K Enterprise. The right of the majority to have their way has, however, been occasionally abused and the whip of majority has The companies act, 1956 has laid down certain provisions which restrict the unbridled supremacy of the majority

often produced sullen effects prejudicial to the best interests of the company and the majority shareholder 3

and confer rights on minority to apply the National Company Law Tribunal or to the Central Government in case of oppression and mismanagement.

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is best done by understanding their rights and striking the appropriate balance among all shareholders.

2. Who are the majority and minority share holders?
A company can be private or public. A public company is one that offers shares, debentures and interests to the public. Owners of a company are called shareholders. Shareholders are people who have purchased interests in a company that makes them partial owners of the company. Minority shareholders are defined as owner of a company who does not have the voting control of the company by virtue of owning below 50 percent of the firm’s equity capital. 4 Minority shareholders are shareholders who have minority stakes in a company that is controlled by a majority shareholder. The majority shareholder is the individual who owns most of a company’s shares. 5 This means he or she generally has more power than all of the other shareholders combined6. The majority shareholder is most commonly the company's parent but may also be an individual or a group of connected shareholders.

3. Widespread mistreatment by Majority Shareholders
Minority shareholders can be unfairly treated by majority shareholder or company directors. Precedence of such cases is widespread in the business world. Although protection mechanisms existed for a long time, these laws have not effectively deterred minority prejudice and abuse. 7


Anonymous, (n.d.).Minority Shareholders (paragraph-5).Retrieved March 2, 2011 from


To be a majority shareholder, a person generally must own more that 50 percent of a company’s shares. When this

is the case, the individual generally wields...
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