Sample Assignments

Topic: “A proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company”.


Majority shareholder[1]is a single shareholder who controls more than half of a corporation’s outstanding shares. Other hand, Minority shareholders[2]are shareholders who have minority stakes in a company that is controlled by a majority shareholder.

Sometimes, one of a small group of shareholders who collectively control more than half of a corporation’s outstanding shares[3] is called majority shareholders. The majority shareholder is most commonly the company’s parent but may also be an individual or a group of connected shareholders. This is more common with smaller companies and in emerging markets.

A majority shareholder is a shareholder that has a majority of the shares of a company. The majority shareholder has complete control over the company. A simple majority of 50% ownership usually confers majority shareholder status. An alternative means of retaining the complete control of a majority shareholder is through the use of voting rights. In this scenario, not all shares have equal voting rights. Only majority shareholder has the voting rights but minority shareholder hasn’t the voting rights.

The right and power of majority and minority shareholders is not same. Majority shareholders actually control the market. They enjoy a huge opportunities from share market. In other hand, minority shareholders do not get their proper right. Sometimes they suffer very much in the time of stock market crash[4]. A proper balance of the right of majority and minority shareholders is necessary for avoid those crisis. For the smooth functioning of the company, authority must ensure the proper balance of the rights of majority and minority shareholders.

Shareholder’s Rights:

Shareholders are generally unaware of the rights that they have. The greater the shareholding of an individual, the greater is his/her rights and the greater is his/her power within the Company. This is so not only because the larger the shareholding the more likely it is to represent a controlling interest, but also because the Companies Act affords greater rights and power to an individual as the size of his/her shareholding increases.

A closely held corporation’s shareholders are usually divided into two groups: (i) shareholders that have a controlling interest in the corporation; and (ii) shareholders that do not have a controlling interest in the company. The corporate shareholders that do not have a controlling interest in the company are known as “minority shareholders.”

Compared to a large-company corporate shareholder, minority shareholders have to work harder to preserve their shareholder rights. Because of the lack of a market for closely held corporate shares, shares held by minority shareholders are generally illiquid. Minority shareholders can find that their lack of corporate control is exploited for the financial benefit of majority shareholders.
Today’s minority shareholders come to the corporation with varied attitudes and agendas[5]. 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 is best done by understanding their rights and striking the appropriate balance among all shareholders. Taking this action early will help avoid problems which at the very least can be distractive and, in many cases, leads to a substantial waste of time and money, a result few businesses can afford and even fewer wish to endure.        

Shareholders have the right to vote for the election of directors and on certain extraordinary matters affecting the corporation. The most fundamental right [6]of every shareholder is the right to vote their shares. Shareholders generally have the right to one vote per share and, except under limited circumstances; a majority of the shares can govern. As noted above, one of the shareholder’s basic rights is to participate in the election of directors. This right, however, is very limited in practice since the number of shares owned by a minority shareholder is generally not sufficient to carry the vote for even one director. Under certain circumstances, that can be mathematically calculated, shareholders owning less than a majority of shares can elect one or more directors.

Minority Shareholder’s Rights:

Minority shareholder rights consist of rights that are generally available to all shareholders and rights that may be available under state close corporation laws. Corporations are governed by state law and shareholder rights are set out in the corporate statute of the company’s state of incorporation. Typical rights are:

? The right to vote on the election of directors;

? The right to amend corporate bylaws[7];

? The right to amend articles of incorporation;

? The right to vote on major corporate events;

? The right to take action through a written consent;

? The right to annual stockholder meetings[8];

? The right to call special stockholder meetings; and

? The right to inspect books and records and the list of shareholders.

However, minority shareholders often find that they are unable to exercise the above rights because the majority shareholders control the corporation. Minority shareholders should address this issue by exercising their freedom to contractually secure greater rights than the corporate statute explicitly allows.

Majority Shareholders control over the company:

Sometimes a person owns 50% plus of the stocks in a publicly-traded company[9]. This allows the majority shareholder outright control of the company’s operations, especially the election of its board of directors. Some majority shareholders are not involved in the daily operations of the company, but most are. Indeed, the majority shareholder is often the company’s founder.

A majority shareholder or group of shareholders can cast the majority of votes at a general meeting of a company, and therefore controls all important aspects of running the company such as the appointment of directors. This affects the rights of minority shareholders who are effectively deprived of their say in the running of the company. Minority shareholders do not get those opportunities like majority shareholders. That actually makes the gap between the balance of majority and minority shareholders.

The value of shares can be depressed by the existence of majority shareholders. Minority shareholders are often effectively deprived of any real say in the running of the company, and they may find that the company is run in a way which benefits the majority at their expense. The “minority” may have more shares, but lack control due to how the company is structured: for example, they may include non-voting shareholders

Sometimes majority shareholders invest a lot of money in a share market. That time they make a rumor about particular share. Then the public will be interested to buy those shares. They think that after some days the price of those shares will be rise. Public buy those share but after a certain period the price of those shares fall and minority shareholders suffer very much. Sometimes majority shareholders buy a share which is not well known, that time the supply was low for outstanding shares. People also buy the share and in a certain period, the price again falls because of these shares is not fundamental share. Minority shareholders again suffer. That happens because there is no balance in the right of majority and minority shareholders and majority shareholders control over the company.[10]

Practicing proper rights to ensuring the balance of majority and minority shareholders:

? Shareholders have the right to expect the officers and directors of their corporation to perform their duties in accordance with established standards of conduct.

? Shareholders have the right to expect their officers and directors to act in good faith, with due diligence and in the best interests of the corporation. [11]

? Shareholders also have the right to prevent directors from becoming personally involved in transactions with the corporation in which they have a conflict of interest or from lending money to themselves or guaranteeing their own debts. Although there are statutory means by which directors and shareholders may approve these transactions, these rules provide some structure and protection for minority shareholders.

? Shareholders have the right to inspect certain records and to receive certain reports and other information from the corporation.

? Shareholders have the right to benefit from corporate operations.

? Shareholders may have the right to maintain their percentage ownership of stock in the corporation.

Certain rights of a minority shareholder are based upon the percentage of shares he owns in the corporation. Thus, it is important for a shareholder to be able to continue to retain that percentage and protect his proportionate voting and financial interests.

? Shareholders have the right to force the dissolution of the corporation.

? Shareholders have the right to question the action of officers, directors and majority shareholders.[12]

? Shareholder may also sue in his/her own name to protect an individual right as a shareholder under a certain circumstances.

Majority shareholders also have certain obligations to minority shareholders in their capacity of controlling the corporation. Basically, majority shareholders have the obligation to act in the best interests of the corporation and all its shareholders. In certain cases this minority shareholder right can be exercised directly against a shareholder, without having to go against a corporation or through the derivative action process.

? Shareholders have the right to participate in distributions from the corporation upon its dissolution.

The other fundamental shareholder right is to participate in distributions from the corporation upon its dissolution. A shareholder is entitled to receive his/her share of liquidating distributions from the corporation. Generally, all shares participate equally in the distribution. The actual distribution, however, will be subject to the statutory priorities and to preferences, if any, set forth in the corporation’s articles of incorporation.

? Shareholders may further develop their relationship through the use of a Shareholders’ Agreement.

No review of the rights of a minority shareholder would be complete without considering the use of shareholder agreements. Without a doubt, the best means of dealing with the rights of minority shareholders, from both majority and minority shareholder perspective, is through the use of an effective and well drafted shareholders’ agreement. A shareholders’ agreement can also address restrictions on the transfer of shares which can help protect all shareholders from having “outsiders” become shareholders in the corporation. This is important to both the minority and the majority shareholders.

The designation of the directors of the corporation may also be a matter minority shareholders would want to address in a shareholders’ agreement. The shareholders of a corporation can name specific individuals or grant certain shareholders the right to designate individuals to serve on the board of directors. This would assure minority representation on the board. A shareholders’ agreement can also cover the expectations of the parties, sale of the business, elections, mandatory distributions, additional capitalization, and the death of a shareholder or the termination of employment of a shareholder-employee. There are many benefits to be derived from having established in advance the effect of these events to help place some order into what may otherwise be very disruptive to the corporation.

Shareholders have certain statutory and equitable rights which may be expanded or restricted by agreement. Some of these rights are fundamental in nature and meant to protect the interest of all shareholders, while others seek to protect minority shareholders. In some cases affirmative action is now required in order to effectuate certain protection for minority shareholders. Understanding these rights is important to keeping the relationship among shareholders well structured and meeting the expectations of all involved. Unfortunately, this aspect of a business is not often very high on the priority list of those organizing the corporation. It is, however, one of those areas where the allocation of resources early in the life of a corporation can help avoid the expenditure of a great deal more time and money after the business has matured and the relationship of the parties has changed.


The proper balance of the rights of majority and minority shareholders is very important for the smooth functioning of the company. If authority ensure that balance, it would be helpful to resolve the conflict in the share market. Government actually has the power to make a law and guidelines to protect the shareholders from any kinds of problems related to share market and safe them from any type of crisis in share market. Majority shareholders are more powerful because of their higher percentage of shares. They actually decision maker of the company. Sometimes, it has seen that their most of the decision has made for their own interest. They do not think about the minority shareholder. That actually makes a negative impact on share market. So, government should be concerned about share market and take appropriate steps to ensure the proper balance of the rights of majority and minority shareholders for the smooth functioning of the company.

















[1] A shareholder who controls more than half of the outstanding shares of a corporation–commonly considered 51% of the outstanding shares. However, if ownership is widely distributed such that there are no majority shareholders, control may be gained with far less than 51% of the outstanding shares.

[2] Equity holder of a firm who does not have the voting control of the firm, by virtue of his or her below fifty percent ownership of the firm’s equity capital.

[3] Shares outstanding are common shares that have been authorized, issued, and purchased by investors. They have voting rights and represent ownership in the corporation by the person or institution that holds the shares.

[4] A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors.

[5] An agenda is a list of meeting activities in the order in which they are to be taken up, beginning with the call to order and ending with adjournment. It usually includes one or more specific items of business to be considered.

[6] The doctrine of fundamental rights is a feature of United States law under which certain human rights that are enshrined in the U.S. Constitution are given a high degree of judicial deference in conflicts between individual liberty and governmental intrusion.

[7] By-law (sometimes also spelled bylaw, by law, byelaw) can refer to a law of local or limited application, passed under the authority of a higher law specifying what things may be regulated by the by-law, or it can refer to the internal rules of a company or organization.

[8] An annual general meeting (commonly abbreviated as AGM, also known as the annual meeting) is a meeting that official bodies, and associations involving the public (including companies with shareholders), are often required by law (or the constitution, charter, by-laws etc. governing the body) to hold. An AGM is held every year to elect the Board of Directors and inform their members of previous and future activities. It is an opportunity for the shareholders and partners to receive copies of the company’s accounts as well as reviewing fiscal information for the past year and asking any questions regarding the directions the business will take in the future.

[9] A public company or publicly traded company is a company that has permission to offer its registered securities (stock, bonds, etc.)

[10] A person who owns more than 50% of a corporation’s outstanding shares, corporation gives entity a huge amount of control.

[11] This right becomes even more important to minority shareholders who, as a result of their limited ownership in the corporation, have little if any practical control over corporate affairs. Shareholders can expect and demand, through derivative suits and otherwise, that officers and directors of corporations operate in the best interests of the corporation. These duties prevent officers and directors from competing against the corporation or developing opportunities for themselves without first providing that opportunity to the corporation.

[12] As noted above, shareholders may question the decisions of officers or directors and this can be done in the name of the corporation through derivative actions. These are civil lawsuits brought to recover damages under a right that belongs to the corporation. To be entitled to bring such an action, a shareholder must have been a shareholder, or holder of a beneficial interest in such shares, at the time of the questioned transaction, or that the shares or beneficial interest devolved to the questioning shareholder by operation of law from someone who held that status. Before filing the suit, the questioning shareholder must also have exhausted all intra-corporate remedies by demanding that the director’s act.


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