PPT: Majority Rule & Minority Rights

 Page 2


Rule of majority
•
Fundamental principal on the basis of which the mangement of the 
company rests- for day to day working of a company 
•
 Once members pass either by oridnary or speical resolution – its 
binding on all members of the company
• Court GENRALLY will not intervene to protect the minority interest of 
such decisions
•
WRONG done to the company- it is the COMPANY which can institute 
a suit against the wrongdoer and the shareholders individually do not 
have a right to do so
• Rule laid down on Foss v Harbottle
Page 3


Rule of majority
•
Fundamental principal on the basis of which the mangement of the 
company rests- for day to day working of a company 
•
 Once members pass either by oridnary or speical resolution – its 
binding on all members of the company
• Court GENRALLY will not intervene to protect the minority interest of 
such decisions
•
WRONG done to the company- it is the COMPANY which can institute 
a suit against the wrongdoer and the shareholders individually do not 
have a right to do so
• Rule laid down on Foss v Harbottle
Foss v Harbottle (1843) 67 ER 189 
FACTS
Two shareholders initiated legal action against the promoters and 
directors of the company on behalf of themselves and other 
shareholders alleging that they had misapplied the company assests 
and had improperly mortgaged the compnay’s property  leading to the 
company’s property to be lost
It was prayed that the defendant might be directed to make good to 
the company the losses
ISSUE
Maintaibility of suit
Page 4


Rule of majority
•
Fundamental principal on the basis of which the mangement of the 
company rests- for day to day working of a company 
•
 Once members pass either by oridnary or speical resolution – its 
binding on all members of the company
• Court GENRALLY will not intervene to protect the minority interest of 
such decisions
•
WRONG done to the company- it is the COMPANY which can institute 
a suit against the wrongdoer and the shareholders individually do not 
have a right to do so
• Rule laid down on Foss v Harbottle
Foss v Harbottle (1843) 67 ER 189 
FACTS
Two shareholders initiated legal action against the promoters and 
directors of the company on behalf of themselves and other 
shareholders alleging that they had misapplied the company assests 
and had improperly mortgaged the compnay’s property  leading to the 
company’s property to be lost
It was prayed that the defendant might be directed to make good to 
the company the losses
ISSUE
Maintaibility of suit
HELD
• The Court held the action could not be brought by the minority 
shareholders
• The wrong done to the company was one which could be ratified by the 
majority members of the company
• The company was the proper plaintiff for wrong done to the company , 
and the company can act ONLY through its majority shareholders
•
The majority of members should be left to decide whether to 
commence proceedings against the directors 
•
The proper plaintiff in the case was the company and not the two 
individual shareholders
Page 5


Rule of majority
•
Fundamental principal on the basis of which the mangement of the 
company rests- for day to day working of a company 
•
 Once members pass either by oridnary or speical resolution – its 
binding on all members of the company
• Court GENRALLY will not intervene to protect the minority interest of 
such decisions
•
WRONG done to the company- it is the COMPANY which can institute 
a suit against the wrongdoer and the shareholders individually do not 
have a right to do so
• Rule laid down on Foss v Harbottle
Foss v Harbottle (1843) 67 ER 189 
FACTS
Two shareholders initiated legal action against the promoters and 
directors of the company on behalf of themselves and other 
shareholders alleging that they had misapplied the company assests 
and had improperly mortgaged the compnay’s property  leading to the 
company’s property to be lost
It was prayed that the defendant might be directed to make good to 
the company the losses
ISSUE
Maintaibility of suit
HELD
• The Court held the action could not be brought by the minority 
shareholders
• The wrong done to the company was one which could be ratified by the 
majority members of the company
• The company was the proper plaintiff for wrong done to the company , 
and the company can act ONLY through its majority shareholders
•
The majority of members should be left to decide whether to 
commence proceedings against the directors 
•
The proper plaintiff in the case was the company and not the two 
individual shareholders
This rule is derived from following general 
legal principles
•
A company is a legal entity separate from its shareholders
•
 The Court will not interfere with the internal management of the 
companies acting within their powers. When an ordinary majority of 
members can ratify the act, the Court will not interfere
•
 The majority can ratify an act , the minority cannot sue