MAJORITY SHAREHOLDERS:
- Those who own more than 50% shares of the company.
- It is a cardinal rule of company law that evidentially all the resolutions are passed according to the will of the majority.
- Resolution of majority shareholders passed at a duly convened general meeting,is binding upon the majority and consequently upon the company.
- Hence, the Majority of the members enjoy the absolute authority, powers of the company and control its affairs.
EFFECTS OF MAJORITY POWERS WITHIN THE COMPANY:
- Since majority members have absolute authority, they can misuse their power for their benefits and act against the interest of minorities.
- There are two very important limitations to the powers of the majority –
- First, the powers of the majority of members are subject to the provisions of the Company’s memorandum and article of association. A company cannot legally authorize or rectify any act outside the ambit of the memorandum of the company.
- Second, Majority must act within the provisions of the act or any other statute or constitute a fraud on the minority depriving it of its legitimate rights.
PRINCIPLE OF NON- INTERFERENCE:
The principle of non-interference has been the best elementary principle in the field of company law
FOSS V. HARBOTTLE.
The court will not usually intervene in matters of internal administration and will not interfere with the management of a company so long they are acting within the powers conferred on them under the articles of the company. Court follows the principle of non-interference in the matters of the company if they are within the scope of memorandum or articles of the company.
JUSTIFICATION:
- Recognition of the separate legal entity of the company:
If a company has suffered some losses and not the individual members, it is the company itself that should seek to claim compensation because the company is a legal entity separate from its members.
- Preserve Right Of Majority To Decide:
The principle in FOSS V. HARBOTTLE maintains the concept of majority rule which provides the right to the majority to decide how the affairs of the company shall be conducted.
- Multiplicity of inefficacious suits avoided:
If every stakeholder were permitted to sue anyone who had injured the company through a breach of duty, there could be so many futile suits as there are shareholders. Legal proceedings would never cease, and there would bea wastage of time and money.
- Suit filed by the minority is of no use if the majority does not wish it:
If the irregularity of affairs of a companycan be subsequently ratified by the majority then Courts do not interfere in a matter which can be ratified by the majority. The court directs the shareholders to exhaust options for redressal within the company first before coming to the courts.
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Posted by:
CS Neetu Saini
AKGVG & Associates