As put in (Chigbo, 2005) a share is portion of ownership in the company that gives the holder of the title to such ownership the right to attend meeting, the right to vote and influence the policies of the company.

Shareholders have varied reasons for investing in companies. Some shareholders invest in order to participate in the daily operations of the organization while others want to enjoy the benefits that come with the investment such as dividends.

In the recent past there has been increased need to protect the minority shareholder. This move is aimed at encouraging the small investor to invest, the small individual investments also raises the company’s average cost of capital, and it is only fair to protect the minority from the majority. According to (Berkman et al., 2010) companies whose management is concerned with protecting the rights of minority share holding have better results in the stock market.

Persons with a portion of shareholding in company that can influence decisions made in the organizations are known as majority shareholders. Minority shareholders are the investors in a company that cannot influence the decisions of the organizations individually.

In the past minority shareholders in the companies had very minimal contribution in the decision made in the organization. However in the recent past the governments in an aim to encourage investment governments have made provisions through legislation that protect the rights of minority shareholders.



There are different classes of shareholders in an organization and each class has different rights. Shareholders in general have rights that include membership rights, right to vote, right to inspect the books of the company, right to attend meeting and participate in the proceedings of the meetings, right to authorize and ratify decisions according to (Jstor, 2000).

As put in the (American Bar Association, 2003) minority shareholders are at a disadvantaged position because they have no ability to influence the decisions made in the organizations individually. For example they cannot influence policies made by the organization because majority shareholders have final voice in all matters.

To infringe on the rights of the minority means that the board and shareholders with controlling shareholding are using the mandate given to them to engage in actions that are prejudicial to the minority shareholders as put in Corporation Act 2009 section 232(c).

To determine if the shareholder has any rights to claim remedy the shareholder has to prove that the majority shareholding were actually prejudicial.

As put in (Law Commission, 2002) the term prejudicial means that the shareholding of the person claiming infringement was put at risk by the actions of the majority shareholding.

This is the basis upon which the minority shareholders should find remedy for the wrong done to them by seeking court action, taking derivative action, making agreements with the holding company or taking personal action.

The Companies Act 2006 section (17) stipulates that the articles of association contain rules that govern the operations of the corporation the moment it has been registered. The articles and memorandum of association bind the members as a whole to any decisions made by the controlling membership. The article of association establishes the relationship between members as put in Companies Act of 2006 section eighteen (Chigbo, 2005). In doing so it creates a statutory contract with the members of the company.

As put in (Law Commission, 2002) the terms in the article can be altered by a majority rule which constitutes three quarters of the shareholders leaving the interest of the other quarter of the shareholding unrepresented.  Unlike other contracts the statutory contract does not require all parties to assent to the contract it require only a majority vote to become binding to all. This necessitates the need for provision to protect the minority shareholder from decisions made by the controlling shareholders. However recently legislation has come to their rescue and they are entitled to the following rights.

Appraisal Rights

As put in the (American Bar Association, 2003) minority shareholders are accorded appraisal rights when the management and controlling shareholders undertake major decisions in the organization that threaten the shareholding of the minority shareholders. Such undertakings include;

Restructuring of the company that includes activities such as amalgamations, take over’s by other company’s, the controlling shareholding selling the company, leasing and selling of the companies assets without the consent of the shareholders as put in (Malcomson Law, 2008).

According to (Letsou and Haas, 2005) restricting strategies which include freeze outs of minority shareholders disguised as mergers are very prejudicial to the minority share holding and court actions should be sort in such situations if appraisal rights were not granted.

Management is required by law to ensure that all shareholders are made aware of such undertaking and they should assent by placing their signature in a form whether they agree to the decision or disagree with that decision. In the case of Cook vs. Deeks (1916) the directors committed fraud against the minority shareholders by dividing the property of the company amongst themselves. If the minority shareholders in this case had appraisal rights the majority share holders could not have committed those fraudulent acts against the minority shareholding.

Appraisal right rights do not apply to shareholders who loose their jobs in the company when they have disagreements with the controlling member’s organization as put in (Law Commission, 2002).

Dissolution and Judicial Intervention

Upon investigation and conclusion that the controlling shareholding of the company are engaging in activities that are fraudulent, misappropriating the fund of the company, or any other activities that do not lead to maximization of the shareholders wealth the minority shareholders have a right to take judicial action or move for dissolution of the company by the courts (American Bar Association, 2003).

Dissolution and judicial rights enable the shareholders to protect their rights in the organization. Judicial proceedings can be instituted by the minority share holders when the controlling shareholding engages in activities such as;

When the controlling shareholding  or management fail to take action against a director, manager or employee who is engaging in activities that go against the organizations objectives such misappropriation of funds. The minority shareholding can seek judicial action to have such a member of the organization removed from the management of the organization as put in Carr & Company Lawyers (2011).

The court can then  institute action such as appointing a receiver manager, appoint a person to purchase the shareholding of complaining shareholder  cancel transaction deemed to negatively affect the minority shareholders and prohibit any companies act as put in (Malcomson Law, 2008).


Court Action

As put in the Corporation Act 2009 Section 232(c) any member of the organization that feels the activities of the organization are being run in a manner that is infringing on his or her rights as a shareholder or the rights of the other shareholders he or she may seek the intervention of the court.

In the case of Foss vs. Harbottle (1843) the plantiff sort whether individual shareholders can bring court action against a company for wrong done to the shareholders by the company. This case set precedent for court action as a remedy for minority shareholder oppression by companies.

(Worthington, 2008) argues that any shareholders have a right to assume that the management of the company will act in the best interest of the company and hence they do not have to authorize every decision taken by management. However where management acts contrary this remedies can be instituted to ensure proper functioning of the organization as prescribed in the articles of association and memorandum of association.

Section 232(1) of the Corporation Act 2009 stipulates that the court has powers to order a company to stop activities that a minority shareholder has instituted proceedings on, because they are infringing on their rights. For example in the case of Wood vs. Odessa Waterworks Co (1889) where the directors passed a resolution that was infringing on the employee’s rights  the court ordered them to stop the issue of the bonds in place of dividends because it was not prescribed in their articles of association.

Such remedy can be applied to prejudicial acts by the board of directors and majority shareholders as stipulated in Corporation Act 2009 sections 232 – 235.

The court may take various actions to arbitrate between the company and minority shareholders here such share holders seek courts intervention for directors abusing their powers or acting contrary to the articles of association as put in Corporation Act 2009 section 233(1). These actions include;

According to section 235 of the Corporation Act 2009 in a situation where the directors are abusing there powers the court may resolve the situation being complained about by either prohibiting such acts, cancelling transactions that are infringing on the shareholders rights or altering such transactions to fit within the boundaries of he organizations articles of association. The court may also sanction the altering of the articles of association under certain circumstances.

The court may restrict the action of a company a put in the Corporations Act 2009 section 233(1) by completely prohibiting creation of transaction or activities.  Such activities would include situations where the management or directors seek to alter the articles in order to suit their own interest for instance when the majority are appropriating the assets f the company to the themselves and yet the minority rare entitled to a share of the assets. In situations where the management with controlling interest commit acts of fraud against the minority. This means the wrong doers are in the company and the share holders have no other means to remedy the situation other than to seek court action.

As put in the case of Wood vs. Odessa Waterworks Co (1889) the directors of the company issued bonds instead of issuing dividend which made the share holders owe the company instead of receiving dividends. Wood a shareholder sort legal action and the judge held that the directors were acting outside the articles of association because the article of association prescribed that dividends be paid in cash.

According to section 205(3) of Companies Act 2006 the court may order the alteration of the articles of association in the situation where the board and the majority shareholding have found loopholes to alter the company’s article of association that allows them to pass resolutions that infringe on the rights of the minority. In the case of Wood vs. Odessa Waterworks Co (1889) the directors passed resolution to issue bonds inside of giving the shareholders dividends. In such a situation the court may order alteration of the articles of association to include clauses that prescribe exact terms of issuing dividends the company.

Companies Act 2006 section 205(4) stipulates when the court orders the articles or memorandum of association to be amended the amended should be done within a period of twenty one days.  Section 205(7) states that when the information revealed during court proceedings about a company are prejudicial in any manner, such proceedings should be done in front of a camera.

Court action should be sort after the shareholder claiming infringement has tried other remedies as put in Law Commission (2002). This remedy may take too long to resolve the prejudicial actions by the majority shareholding and its expensive both to the plaintiff and the defendant as put in Corporation Act 2009 section 232. It therefore should be sort as a last alternative.

However in some instances the share holders cannot institute court action on behalf of the company.  In the case prudential assurance Company Ltd vs. Newman industries Ltd the judge held that when a company as a corporate person suffers damages due to neglect the shareholders are not in a position to institute court proceedings on behalf of it. The company has to institute such proceedings through its management.

Personal Action

According to the Companies Act 1985 section 35(2) stipulates how notice for meeting details such as the time, venue and agenda of the meeting should be given.

Corporation Act 2009 section140 stipulates that personal action may be taken where possible for example when the notice for meetings fails to give details as to the date, directors interest or the agenda of the meeting the courts cannot intervene so they have encouraged members to pass counter resolution to defer the, meeting until the company follows due procedure in calling for meetings.

Minority shareholders in certain situation where due process has not been followed are in a position to institute remedy because majority rule does not apply in those instances as put in (Law Commission, 2002).


As put in the Corporation Act 2009section 239 in certain instances remedy to minority shareholder alleging wrong doing by majority share shareholding can be instituted through ratification.

Ratification is applicable where the wrong done is against the company, where the directors are not adhering to their fiduciary duties or the wrong done is outside the boundaries of the powers of the board members.

According to the Corporation Act 2009 section 234(a) when the wrong committed by directors to minority shareholders happened in the past remedy for those actions can be sort through a simple resolution that ratifies the actions and makes it binding to the company

When the oppressive acts are against the shareholder were committed by the company itself remedy for such actions can be sort through a resolution that ratifies such actions and makes them binding to the company. In the case of North-West Transportation Co Ltd v Beatty(1886) the director of Northwest transportation entered into a contract with the company for sale of a ship the shareholder with the majority vote including the director ratified the contract and it become binding to the company.

When an act is committed by a third party against the company and its shareholders but such an action is beyond the powers of the board members such an act can be resolved through ratification.


When the breach against the minority shareholder entails neglect of fiduciary duties by the board members, for example by failing to act in the best interest of the company remedy for such actions can be instituted through ratification Cook vs. Deeks (1916) the directors committed fraud against the  minority shareholders by dividing the property  of the company amongst themselves. Such actions of fraud against the minority shareholder can be remedied through ratification.

Representative Action

The minority shareholders can seek remedy through combing their individual rights or votes into one to unifying larger number when all their rights have been infringed on equally by the controlling shareholding.  For example in the case of Wood vs. Odessa Waterworks Co (1889) where the director was infringing all the rights of the shareholders the  minority shareholders in such instances can unify their votes and take action against the board of directors as a group rather than individually.

According to (Admati & Pfleiderer, 2009) representative action can also be exercised through threats of walking by minority shareholders by off loading their shares in the stock market if their rights are not addressed.

Derivative Action

Derivative action is where the minority shareholding takes action on behalf of the company for wrong doing committed against the company by either the management or a third party. For example in the case of North-West Transportation Co Ltd v Beatty(1886) the minority shareholder sort derivative action through the court against the director but their attempt was  not successful because the contract was ratified by the majority shareholding making it binding to the company.

Section 232(b) and 232(c) of the Corporation Act 2009 provides exceptions as to who can bring derivative action on behalf of the company. Minority shareholders can only institute derivative action where the majority shareholders are the one ones instigating the company against suing.

Derivative action by minority shareholders is only applicable where all other remedies have been sort and failed.

Shareholders Agreement with Holding Company

The minority shareholders can also enter into an agreement with the company where they have the share holding and find a solution for oppression of their rights.  For example when the minority share holding rights for notice to attend meetings have been infringed on by the company the minority shareholders can enter into an agreement with the company that in future due process shall be followed otherwise alternative remedy will be sought.

(Van der Elst & van den Steen, 2009) states that squeeze out rights y the majority shareholders can force the minority share holders out through buy outs. Such a situation can be remedied by the minority shareholders by entering into agreements with the holding company to restrict such rights from being exercised.


The rights of minority shareholders are gaining popularity in most companies and have seen a shift from being ignored and taken as immaterial in the decision made by the organization to being recognized as important and influential in the organization.

This is due governments aim to protect minority shareholders through legislation and the companies realization of minority shareholders effect on the company when they institute remedies such threats of walk outs on the company and court action that brings negative publicity to the company.


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