In the dynamic landscape of corporate governance, the protection of minority shareholders plays a pivotal role in ensuring fair and equitable treatment within companies.
This article explores the step-by-step process of protecting minority shareholders, analyzing the criteria for identifying minority shareholders and the legal avenues available to them.
- 1 Protection Of Minority Shareholders
- 2 Who Are Minority Shareholders?
- 3 Legal Framework for Minority Shareholders
- 4 Eligibility and Claims for Minority Shareholders
- 5 Criteria for Minority Shareholders in Bangladesh
- 6 Cases of Legal Protections of Minority Shareholders
- 7 Legal Advice on Protection of Minority Shareholders matters at CLP
In the realm of corporate governance, safeguarding the rights and interests of minority shareholders is imperative for maintaining a fair and transparent business environment.
Minority shareholders, constituting individuals or entities with ownership stakes less than the majority, often face challenges in influencing crucial decision-making processes within a company.
A minority shareholder refers to an individual or entity possessing a less-than-majority ownership interest in a company, lacking control over decision-making processes.
Despite owning a smaller portion, minority shareholders may encounter challenges in influencing corporate policies compared to majority shareholders with controlling interests.
Section 233 of the Companies Act, 1994 in various jurisdictions, including Bangladesh, reflects a crucial mechanism designed to empower minority shareholders by granting them a direct mode of complaint to the Court when they perceive that the company’s affairs are being conducted in a manner prejudicial to their interests.
Eligibility for Protection: A minority shareholder with, for example, 6% of shares is ineligible for protection under section 233.
Minimum Ownership Percentage: The Companies Act in Bangladesh establishes a minimum ownership requirement, requiring minority shareholders to hold at least 10% of shares (with share capital) or one-fifth of members (without share capital) for protection under specific legal sections.
Joint Claim for Protection: Under certain conditions, minority shareholders in Bangladesh can jointly claim protection. This is applicable when actions by the company, its directors, or majority shareholders are considered prejudicial or discriminatory.
Empowerment through Section 233: Section 233 of the Companies Act grants members or debenture holders the power to individually or collectively bring an application to the court. This application addresses situations where the company’s affairs are conducted in a prejudicial manner to the minority, discriminatory actions are taken, or resolutions adversely affect minority interests.
Court Authority: The court has the authority, under Section 233, to issue orders necessary for safeguarding the interests of the applicants and other affected members or debenture holders.
Conditions and Limitations: Claims for protection under Section 233 are subject to the conditions specified in Section 195 of the Companies Act. These conditions outline the eligibility criteria and prerequisites for bringing such claims.
Section 233 specifies that holders of one-tenth of shares (for companies with share capital) or one-fifth of members (for companies without share capital) are eligible to apply.
Unlike in England and Australia, Bangladesh restricts the right to apply to a minimum of ten per cent shareholdings, aiming to deter frivolous applications. However, questions arise about the logic behind limiting the protection of minority shareholders based on their share percentage.
Section 233’s Origin and Adoption: Section 233’s origin in the English Companies Act 1948 led to its adoption in jurisdictions like Bangladesh.
Application Criteria for Minority Shareholders: To prevent frivolous applications, the law imposes criteria on minority shareholders seeking protection. In Bangladesh, applicants must collectively hold one-tenth of issued shares or, in the absence of share capital, comprise at least one-fifth of registered members.
Grounds for Application: Minority shareholders can approach the Court when they believe the company’s affairs are being conducted in a manner prejudicial to their interests.
This includes situations where the powers of directors are exercised in disregard of minority interests or where discriminatory actions adversely affect minority shareholders. The law provides remedies for resolutions passed by the majority that discriminate against the interests of the minority.
Legal Process and Remedies: Upon receiving an application, the Court initiates a thorough examination and, if it finds merit, can issue various orders to rectify the situation.
Remedies may include cancelling or modifying resolutions, regulating the company’s future conduct, amending the memorandum and articles of association, or facilitating the purchase of shares by other members.
Reporting and Compliance: Once the Court issues an order under Section 233, the company must inform the Registrar within fourteen days. Failure to comply can result in fines for the company and its officers, ensuring transparency and accountability in implementing Court orders.
Unique Features of Bangladesh Law: Bangladesh’s legal framework uses the term ‘prejudice’ instead of ‘unfair prejudice,’ granting the Court more flexibility under Section 233.
Additionally, Bangladesh allows action in cases of discrimination regarding the interests of any member or debenture holder, broadening the scope of protection for minority shareholders.
Nafisa Chowdhury –vs- United Food Complex Limited and another reported in 53 DLR (2001) HC page- 81, it was held by Md. Awlad Ali J that the High Court Division has the power to give direction for the protection of the interest of the minority.
In the case of Nahar Shipping Lines -vs- Homera Ahmed reported in 56 DLR (AD) 2004 page- 36, the Appellate Division held that under Section 233, the Court can give the relief sought by the applicant or any other relief, the objective of the relief is to negate the impact of the prejudicial or other relevant misconduct on the part of majority shareholder.
For any queries or legal assistance regarding the protection of minority shareholders matters, please do not hesitate to reach out to us. Our dedicated professionals are ready to guide you through the legal complexities, offering tailored solutions to meet your specific needs.
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