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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?

3712 words - 15 pages

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 ...view middle of the document...

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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 a substantial amount of power over the corporation.

Owning the much of a corporation gives an entity a huge amount of control. The majority shareholder is often the Based on a study commissioned in April 2004 by Jardine Lloyd Thompson Pte Ltd, there were a total of 19 cases

founder of the corporation.

of minority shareholder claims (personal and derivative) for oppression under Section 216 of the Companies Act.

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Shareholders holding minority interests in closely-held corporations are at risk of unfair or oppressive treatment8 by the majority or controlling shareholders, to an extent well beyond that of their counterparts in partnerships or in corporations whose shares are publicly traded.

Sometimes directors and officers of closely held corporations that have acted fraudulently or illegally mismanaged the corporation and also acted oppressively or unfairly toward one or more minority shareholders. Shareholder oppression occurs when the majority shareholders in a corporation take action that unfairly prejudices the minority. It most commonly occurs in close corporations because the lack of a public market for shares leaves minority shareholders particularly vulnerable, since minority shareholders cannot escape...

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