Foss V Harbottle

A company consists of two organs, namely members or shareholders and the board of the directors. Generally, the power of management is vested upon the directors as stated in the constitution and if the directors are also holding the majority shares in the company, the directors will be in control. However, the Companies Act 2016 has required that certain businesses can be conducted with the approval of members. The common law also has developed remedies in order to protect the interests of members generally and in particular the minority members.
Minority members may face the situation where the majority abuse their powers and positions to gain personal benefits from the company or where the interest of majority may come in conflict with that

In this case, there were 10 members in the company. Two members, Foss and Turton claimed that the the directors had caused the company to buy a piece of land at an inflated price from another company in which the directors and some other members had interest. The minority members took legal action against the directors. The court held that a wrong was committed against the company, and only the company could take action. The members did not have legal standing to sue the wrongdoers because the members and the company were separate legal entities. The power to sue only vested in the company whenever its rights have been infringed upon. The members cannot enforce the rights and the remedies of the

Thus, the courts relaxed the rule in Foss v Harbottle and allowed action to be taken by a member on behalf of the company against wrongdoers who were in control of the company. Further, though the members’ voting power is a personal right, the court in Allen v Gold Reefs of West Africa Ltd (1900) held that the majority must exercise their voting powers “bona fide for the benefit of the company as a whole”. The majority cannot abuse their powers to obtain an unfair advantage at the expense of the minority. If the resolution passed was to discriminate between the majority and the minority so as to give the majority an advantage in which the minority was deprived. So, this is called as fraud on minority (Greenhalgh v Ardene Cinemas Ltd