There is a general principle in corporate matter that “the courts will not in general, intervene at the instance of shareholders in matters of internal administration; and will not interfere with the management of a company by its directors so long as they are acting within the powers conferred on them under the articles of the company”.  So, once what is decided by the majority of the shareholders shall not be the subject to the court’s interference on the application of a shareholder unless there is any violation of law.  This is called the principle of supremacy of the majority shareholders which was established in the famous case of Foss v. Harbottle.

Thus, the majority of shareholders enjoy wide powers in the management and administration of the affairs of the company, and the will of the majority prevails over the minority. But sometimes, these wide powers may also be misused by the majority shareholders to exploit the minority shareholders. Therefore, the interest of the minority shareholders requires protection.

Palmer says: “A proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company.”  So, to protect the interest of the minority law is always vigilant.

Legal Provisions as to Protection of Minority:

Our Companies Act, 1994 provides different provisions for protecting the interest of the minority shareholders. Legal provisions under the companies Act, for the protection of the interests of the minority are stated here:

  1. i) Investigation of affairs of company by inspectors:

To observe the affairs of the company and to see whether the rights of the minority are well protected, the government may appoint one or more competent inspectors.

In the case of a company having share capital, not less than one-tenth and in the case of a company not having a share capital, not less than one-fifth of the members may file such an application for inspectors. The application shall be supported by evidence.

And if it is found that there is oppression against minority then the government r the court may take steps, on the basis of the report of such inspectors, to store the rights of the minority.

  1. ii) Court’s power to protect the interest of the minority:

Where it is found that-

  1. a) The affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to one or more of its members or debenture holders; or
  2. b) The company is likely to act in a manner which discriminated or likely to discriminate the interest of the member or debenture holder; or
  3. c) a resolution has been passed which discriminates the members or the Debenture holders;

Then on the application of the members in number as stated earlier, the court-} o

may take steps to protect the minority interests. A remedy under section 233 can be given only if the directors have acted in breach of duty or if the company has breached any of its articles or any relevant agreement.

3.2 Procedure to be followed:

  1. i) Hearing of the petition:

On receipt of the application from the aggrieved members, the court shall send a copy of such application and fix a date for hearing.

“When an application is admitted the same is not liable to be dismissed/rejected summarily without hearing on merit, unless such application is absolutely incompetent being without jurisdiction.”

  1. ii) Order passed by the Court:

After hearing the petition if the court is of the opinion that the interests of the minority members are really affected, the court may pass a director either:

  1. a) To cancel or modify any resolution or transaction; or
  2. b) To regulate the conduct of the company’s affairs; or
  3. c) to amend any provision of the memorandum and articles of the company; or
  4. d) To pass any order which the court may think fit.

iii) Amendments not to be made without the leave of the courts:

Where any amendment is made in the memorandum or articles of the company by an order of the court, the company shall not, without leave of the court, make any amendment therein or take any action which is inconsistent with the direction of the court.

  1. iv) Informing the Registrar:

Where the court directs to amend any document, the company shall within 14 days from making of such order, inform the Registrar in writing and send a copy thereof. In default, the company and its officers who are involved of such default shall be liable to a fine not exceeding one thousand taka.

In a corporation, some shareholders hold enough shares of the corporation stock that they can exercise control over the corporation. A minority shareholder is any shareholder that does not exercise control over a corporation. By definition, minority shareholders own less than 50% of the company’s outstanding shares.

Minority shareholders have certain legal rights. Their minority shareholder rights are determined by the law of the state where the company was incorporated.

Every corporation, large or small, has shareholders. In large corporations with stock bought and sold on a public stock exchange, shareholders can easily sell their shares. However, shareholders in privately held, close corporations (where shares are owned by a small number of persons) cannot as readily sell their shares.

In privately held corporations, especially smaller privately held corporations, the stock cannot be readily valued and sold on a public exchange. Without state laws that grant minority shareholders in close corporations certain rights and protections, those minority shareholders are particularly vulnerable to the oppressive actions of the controlling shareholders, and they have little ability to sell their interests quickly or protect their investment.

When a corporation, acting through its officers, directors, or majority shareholders, violates the rights of a minority shareholder, the minority shareholder can bring an action against the corporation. If you are a minority shareholder in such a case, you should consult a litigation and dispute resolution attorney to discuss your case. An attorney with experience in these matters can help you understand and protect your rights.

The most important protection afforded to minority shareholders comes in the form of a statutory remedy in section 233 of the Companies Act, 1994 of Bangladesh. In order to be eligible to file a petition under the section, the minority shareholder(s) must hold a minimum of ten percent of the issued shares in the case of a company having a share capital. The grounds on which such a petition may be filed by a minority shareholder must be that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to one or more of its shareholders or that the company is acting or is likely to act in a manner which discriminated or is likely to discriminate the interest of any shareholder.

The concept of prejudice is extremely wide thereby allowing the court ample scope to exercise its judicial discretion in determining whether a particular conduct falls within the scope of this section. It protects not just the rights of minority shareholders but also their legitimate expectations. A typical case arises where the minority shareholder has invested in the company on the basis of an informal understanding (not reflected in the Articles of the company) that all shareholders will participate in the management of the company through their board positions. Following irretrievable breakdown in relationship between the majority and minority shareholders, the majority removes the minority shareholder from the board by exercising its majority voting power; the minority thus finds himself in the undesirable position where he is locked out of management and his investment locked in the company.

In adjudicating an application under this section, the court may examine all the documents which have been filed by the parties and may also order documents to be produced by the company and/or any of the parties to the case. After being satisfied that the interest of the minority has been prejudicially affected by the majority, the court has a wide discretion to fashion appropriate relief. The court is empowered to pass any order it thinks fit, including but not limited to, cancellation or modification of any resolution or transaction, regulation of the conduct of the company’s affairs in future in such manner as specified by the court and amendment of any provision of the memorandum and articles of the company. In the case of a minority shareholder who is finding it difficult to continue his business relationship with the majority due to irretrievable breakdown of their relationship, but finds his investment locked in the company, the remedy most often sought and most often granted is an order that the majority shareholders purchase the minority’s shares at a value to be determined by an independent auditor appointed by the court under the terms of reference prescribed by the court. Alternatively, the minority shareholder may seek an order directing the majority shareholders to sell their shares to the minority shareholders at a fair value to be determined by an independent auditor appointed by the court under the terms of reference prescribed by the court. The court may determine the valuation technique, that is, balance sheet or asset based valuation vis-à-vis profit and loss account or income based valuation, to be adopted in a particular case based on expert evidence.

In order to truly unlock the potential of this statutory remedy, certain reforms are imperative. To name one, the minimum shareholding requirement of 10% should be done away with to ensure that access to the statutory remedy is not outright denied to minority shareholders and public shareholders of listed companies holding less than the required minimum.

Despite the availability of this statutory remedy to minority shareholders of companies in Bangladesh, a growing trend of minority shareholders is to try to protect themselves by non-litigious means like shareholders agreements, specially drafted articles of association (containing, among others, class rights and weighted voting rights) or a combination of these approaches in closely held companies in which they have invested. These self-help measures that the minority shareholders are increasingly adopting may significantly reduce their vulnerability to the common grievances they may have against the majority shareholders.

Rights of Minority Shareholders in Most States

Any shareholder in a corporation, whether public or private, has certain important rights pertaining to the corporation. Examples of shareholder rights include the right to vote at annual shareholder meetings, to review information about the company, including the company books and records and a list of all shareholders, and to vote on major corporate events such as selecting directors, approving mergers, dissolution, major asset sales, and amendments to the corporate charter documents.

In private corporations, minority shareholders need additional protections against attempts to improperly exploit the situation. The extent of these additional rights afforded by state law varies from state to state. Nearly all states recognize certain minority shareholder rights. In addition, it may be possible to have your attorney negotiate certain shareholder rights and remedies specific to your situation and even have them incorporated into a shareholder agreement.

Among the widely recognized minority shareholders rights are:

1. Fiduciary Duty Owed by Majority Shareholders.

Under most states’ corporation laws, the majority shareholders owe a fiduciary duty to the minority shareholders. This means that majority shareholders must deal with minority shareholders with candor, honesty, good faith, loyalty, and fairness. Minority shareholders have the right to expect company officers and directors to act in the company’s best interests and in compliance with the shareholders agreement. Ways that majority shareholders can breach this fiduciary duty is when they form other companies to compete directly with the corporation, pay themselves high salaries, or sell stock of the company on terms favorable only to themselves.

In some cases where the majority shareholders have breached a fiduciary duty to a minority shareholder, the minority shareholder may be able to file a shareholder derivative action. This is a special kind of lawsuit available to a shareholder when corporate management knows that an officer, director, employee, or shareholder has engaged in self-dealing and fails to protect the interests of the corporation. In this kind of lawsuit, a shareholder can ask a court to allow the lawsuit to proceed in the name of the corporation.

If a minority shareholder believes that corporate management has acted with intent to defraud any person, or exercised power in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards the minority shareholder’s interest (often reducing the value of the minority’s interest), the minority shareholder may initiate a lawsuit against the majority shareholder(s) and seek an appropriate remedy.

2. Access to Company Financial Records.

As mentioned above, every shareholder has the right to attend company meetings, vote the shares, and review the company’s books and records. To exercise these rights, shareholders have to follow applicable state law and company procedures. For access to company information, for example, the shareholder usually must make a written demand on the corporation and put forth a proper basis for the request.

3. Minority Discount.

A minority discount is assigned to minority shares when a private company values its shares in preparation to sell or transfer ownership. This discount on minority shares reflects the fact that minority shares are not as valuable because they do not provide as much company ownership as other shares. Ironically, minority shareholders can buy shares for less than other investors and still receiving many of the same benefits of stock ownership. This is one advantage to being a minority shareholder.

4. Benefit from Shareholdings.

Minority shareholders have the right to benefit from such events as receiving dividends and selling shares for profit. However, these rights can be suppressed by those in control. For example, the company directors can decide not to pay dividends or not to purchase shares from shareholders. If a minority shareholder believes a majority shareholder is suppressing minority shareholder rights to benefit from shareholdings, it is time to consult with an experienced attorney. The attorney can help the minority shareholder follow the proper procedures and force the corporation to purchase his or her shares for a value determined by a court.