law

Legal Protection of a Minority Shareholder

Minority shareholders in business are those who own less than 50% of the outstanding voting shares. This shareholder could be either of the following:

  • A real investor, who offers capital and had minimal or was less involved in the company’s day-to-day activities.
  • A creator partner or significant employee, who has been given shares at the instance of employment.

Many at times minority shareholders are at a huge risk should they fall out with the majority shareholders under the standard corporate governance rules. The corporate governance rules, allow for the majority in almost if not all matters, which could lead to restricted access to information, influence or even control.

Types of Claim and Remedy

1.      Unfair Prejudice Petition

The most important way to reprieve for a minority shareholder is to bring an unfair bias petition which should always be pondered on first. With eachlegal representation kind of claim comes a different remedy each with the sole aim of helping the minority shareholder get a fair worth of their assets.

Remedy

Commonly sought after in an unfair prejudice petition is that the majority shareholders purchase the minority’s shares at price settled upon by the court.

2.      Just and Equitable Winding Up

Just as in an unfair prejudice petition, the grounds or circumstances that may lead a court in ruling to wind up a company are the same. On the other hand, the circumstances that may make a court to wind up a company with all the drawbacks or shortcomings it may bring is if winding up the company is the only remedy.

Remedy

An order to wind up the company while it is still active and dissemination of all the net resources to the shareholders.

3.      Derivative Claim

A shareholder brings a derivative claim on the company’s behalf and for the aid of the company. The claim ought to be lodged in the business judge hammerinvolving carelessness, breach of duty or breach of trust by a director.

After bringing in the claim, the complainant must seek permissions from the court in order to proceed with the allegations. The court may otherwise reject the claims if they are not in the sole interest of the company.

While the company may be the defendant, in this case, it is not a case against or by the company and by that the company may not be required to be active during the court’s proceedings.

The complainant if granted permission to continue with the case may ask the court to request the company cover for the court’s legal fees should the claims be of the company’s benefit. However, this is subject to deliberation.

Remedy

Most commonly pursued in a derivative claim, is that the enforcement of the claim on the director for the company’s benefit with the hope of increasing the company’s investments at last distributed to the shareholders.