Minority Shareholder Case Study

Before expounding on the rights and remedies for the protection of the minority shareholders, it is essential to discuss certain basic issues such as definition of the term minority shareholders, the reason why the minority shareholders in a company should receive special protection and whether the special laws for minority shareholders’ protection are in conflict with the principle that the majority rules in a company.

2.1. Meaning of the term ‘shareholder’

‘Shareholder’ as the name suggest is a person who holds the shares. The Act does not define the term shareholder. However it does define a ‘member’ . A reading of the definition of member will yield the conclusion that the scope of word member is wider than shareholder. Meaning of member

A majority shareholder has traditionally meant to be a shareholder who owns or controls more than half of the company’s voting shares. Conversely, a minority shareholder is one who owns less than half of these shares. However, the criterion of using capital alone in determining majority and minority groups is out-dated. The following discussion will bring the focus on the fundamental criterion of ‘control’ in classifying shareholders.

As said above, minority shareholders are investors who due to their small shareholding in the company are unable to affect business decisions. The Black’s Legal Dictionary defines the term as those “who hold so few shares in relation to the total outstanding that they are unable to control the management of the corporation or elect directors.” The Act does not define the term “minority shareholder”, even though it specifically uses the

Is it right then to call such a shareholder a minority?

A question that comes up is: whether is it even possible to define minority shareholders by the percentage of shares an individual holds of a company? Interestingly, the Act contains special rights available to shareholders holding at least one-tenth of issued share capital of the company or one-tenth of its total members. Can this distinction of shareholders by the Legislature be interpreted that the law has impliedly made holding of less than 10% of shares a determining criterion of minority shareholder?

The answer is an emphatic no, as holding of share capital is not equivalent of exerting control in a company. To illustrate, the company also has shareholders holding preference shares, which confers rights excluding the right to vote. In other words, it may happen that a shareholder holding majority of the company’s capital power may not have any power to take any major decision in the company, and consequently he cannot be said to be a majority shareholder. In such circumstances, a majority shareholder is actually a minority shareholder as he lacks control over the