Minority Shareholders

Rights of Minority Shareholders

Minority Shareholders, in simple terms, can be defined as a person or group of persons who do not hold control over the entity/ enterprise by virtue of their control/ ownership or holding of the entity’s equity capital below fifty percent. 

It becomes very important for a company and the business lobby as a whole to protect the rights of the minority shareholders and to protect them from exploitation because of the high percentage of holding capital holders/ investors and the private equity investors who exercise major decision-making powers in the company.

It is also required to keep the minority shareholders awarded and updated about their rights, so that the same can be exercised by them as and when required. And for the proper and systematic redressal of concerns and grievances of the minority shareholders, appropriate committees as required by law shall also be constituted by the company/ enterprise.

RIGHTS OF THE MINORITY SHAREHOLDERS UNDER THE COMPANIES ACT, and the rules made thereunder:-

Several rights have been accorded to the minority shareholders under the Companies Act, 2013, which include:

  • Protection against Oppression and Mismanagement-

The companies act, 2013 provides that if any member or members collectively holding at least 10% of the company’s issued share capital, or a minimum of 100 or 10% of the total number of members, whichever is less, believes that: 

  • the company’s affairs are being conducted in a way that is either harmful to the public interest or the company’s interests; or oppressive to any of the company’s members.
  • any mismanagement; changes that would materially affect the management of the company, or
  • there is any breach of any fiduciary duty by the majority shareholders;

they have the right to approach the NCLT. On receipt of such application, the NCLT may pass an order as it deems fit.

  • Requisitioning General Meeting: 

The shareholders holding not less than 10% of the company’s voting power can make a request to the Board of the directors of the company to call an extraordinary general meeting. Provided that in any case if the Board of the directors fail to call the extraordinary general meeting then the shareholders can hold the general meeting themselves and are eligible to vote at such requisitioned meeting.

  1. Institution of the Class Action Suits: 

Under the provisions of Section 245 of the Companies Act, 2013 a class action suit can be instituted with the NCLT on an application of at least 100 members of the company or 5% of the total number of members whichever is lesser or any member(s) owning at least 5% of the company’s issued share capital in case of an unlimited company and 2% in case of a limited company.

A class-action suit provides an opportunity for a group of people having a common interest to reach out to NCLT if they believe that the affairs of the company are managed in a manner prejudicial to the interest of the members, company, or public at large.

  •  Contractual Rights: 

The minority shareholders have a right to protect and safeguard their interests by incorporating specific conditions in the shareholder’s agreement such as restrictions in the transfer of the shares of the company, restrictions on changes or alterations in the share capital of the company, etc.

  • Right to Appoint Small Shareholder Director: 

Under the provisions of Section 151 of the Companies Act, 2013 in the case of a listed company the small shareholders of the company can appoint a director named a small shareholder director who acts as such to safeguard, promote and represent the interests of the small shareholders of the company. Provided that, such a director is appointed in the capacity of an independent director in a company for a prescribed period of time.

  • Right to Vote Electronically: 

As per the provisions of  Section 108 of the Companies Act, 2013 it is required for certain prescribed companies to provide the e-voting facility to the shareholders of such company which eventually leads to effective participation and engagement of the minority shareholders of the company to contribute in decision making.

  • Various Other Rights: 

The minority shareholders have been granted various other rights such as the right to change or restrict the changes in the share capital of the company, cancellation of variation of the rights, and various rights in case of amalgamation or merger of the company.

Henceforth, the Companies Act provides for various statutory rights along with various other additional rights to the minority shareholders of the company to protect and safeguard their interest in the organization and to protect them from exploitation.

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