Minority Shareholders - Potection by Ca 2006

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COMPANY LAW – MINORITY PROTECTION

Question:
Does company law protect shareholders? Discuss.

Answer:

Shareholders have ultimate control of a company. However the directors run the company's business and are responsible for its management. In general shareholders cannot interfere, although they can appoint and remove directors. Some constitutional matters, such as changes of the company's name, or to its Memorandum or Articles of Association, or to put it into liquidation (when solvent), require approval by special resolution, i.e. a 75% majority, which can therefore be blocked by shareholders with 25% or more. Other shareholders' resolutions require only a simple majority, i.e. more than 50% voting in favour. But what happens when clouds appear on the horizon, when the majority shareholder sees the company as his own to do with as he likes, or when he wants to eject a director who is also a shareholder? Surely, subject to having sufficient voting power to carry an ordinary or special resolution, the majority rules? Thus, it is the minority shareholders that are always in the conundrum. The Companies act 2006 has bestowed some forms of protection unto these minority shareholders.
The statutory derivative action and the unfair prejudice remedy will be examined as to how readily available these remedies are to act as a check on directors and in some cases, majority shareholders in the execution of their duty. It is important to note that as at the time the financial crisis started, it is the common law derivative action that was in place. As such, before considering the statutory derivative action, the common law derivative action will be briefly analysed as to whether it’s provision was sufficient to act as a check on directors or on the contrary part of the reason why directors were negligent in their duties.
The general rule is that a company is a legal…...

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