Rights Of Minority Shareholders In A Company

Rights Of Minority Shareholders In A Company

Black’s Law Dictionary defines Capital as “Money or assets invested, or available for investment, in a business”. Any input required in order to run an enterprise so as to generate or add value to a product can be classified as capital. Capital, in its broadest sense, can be divided into five major groups, namely, Natural Capital, Human Capital, Social Capital, Manufactured Capital and Financial Capital. Financial Capital is one of the major contributors for any entity.

With regard to finance, capital is a term used for any asset with regard to its financial or monetary value along with other tangible factors required for generating or adding value to a product. Capital, in its most basic form, is mobilised in two different ways: either by borrowing it or by trading something in exchange for it. When capital is borrowed, it is called debt. On the other hand, if a part of the ownership of the entity is exchanged in order to secure capital, it is termed as equity. In order to “share” the ownership of an entity, it has to be divided into smaller parts and then some of these parts can be exchanged to mobilise capital. These smaller parts are called as “shares” of the company and the owner of these shares are termed as “shareholders”.

Shareholders can be further classified into individual, majority or minority shareholders. When such parts are owned by a person in the capacity of an individual, such a person is classified as an individual shareholder. The difference between the majority and minority shareholders depend purely upon the quantum of the parts under their control. This implies that since majority shareholders have more parts, only their decision will prevail when subjected to the democratic process of voting. This further implies that the rights of minority shareholders not only have to be recognised but also be strictly guarded. To further understand the nature of rights, it is pertinent to first understand the nature of share capital.

Under section 43, Chapter IV of the Companies Act, 2013, the share capital can be either equity share capital or preferential share capital. Equity shareholders enjoy voting rights or some other rights linked with other parameters, like dividends, that may be defined by the rules. For such shareholders of preferential share capital, apart from voting rights which are often weighted, enjoy other preferential rights with respect to payment of dividends or the right to repayment.

According to Section 3 of the Companies Act, 2013, a company comes into existence when the name of a person is subscribed to a memorandum of association. The memorandum of association, as per section 10, after registration, binds the signatories to observe all the provisions of such memorandum. In case of requirement of any amendments to be made in the provisions, the shareholders have to right to be notified of any such action. In case there is dissent among the minority shareholders, they also have the right to exit which has to be provided by the promoters of the company in order to make an exit.

Further, the Board of Directors of the Company can go forward and call an extra – ordinary general meeting as per section 100 of the Act, as and when required. This extra – ordinary general meeting can be called for by the Board at a requisition made by the shareholders who are holding at least 10% of the paid up share capital of the company within twenty – one days of the date of request by shareholders on a date not less than forty-five days from date of request for extra – ordinary general meeting. The Companies are also required to hold an Annual General Meeting (AGM) every year, with an interval of less than fifteen months between two consecutive annual general meetings.

After critical examination of some of the major provisions of Companies Act, 2013, it can be ascertained with reasonable certainty that the core intention of the legislation is to safeguard the interests of the minority shareholders but in order to fulfil its purpose, it requires the proper implementation of these provisions with respect to safeguarding of the minority shareholders and to give due consideration to their valuable rights. It may also be concluded that due to suppression of the majority rules and other regulations under practise in the company, the minority shareholders back in Companies Act, 1956 were not considered as a significant part of the company. But Companies Act 2013 has rectified this critical issue and has made an attempt to undertake various crucial steps to safeguard the interest of the minority rights of the shareholders in the company irrespective of existence of oppression and mismanagement of the company affecting the rights of the minority shareholders. Therefore, this approach towards the enforcement of the minority rights guarantees proper administration of the corporate activities successfully only when it is implemented properly by giving importance and rights to the minority shareholders in the management of the company. But, it is of utmost importance that every minority shareholder should be aware of so as to safeguard interests in that company. It is only after awareness of the existence of a right, that a right can be demanded and fought for.

1-, June 25, 2018 23:57 IST.
2-, June 26, 2018 01:19 IST.
3-, June 26, 2018 02:21 IST.
4- (ibid), June 26, 2018 03:09 IST.
5- (ibid), June 26, 2018 03:53 IST.
6- (ibid), June 26, 2018 03:59 IST.
(Disclaimer: The information provided in this article is given only to provide helpful information and understanding on the subject/topic of law discussed. The contents of this article are not the views of Amie Legal and Amie Legal does not take any responsibility or liability for the opinions expressed by the Author herein.)


Annual General Meeting (AGM)
Company Law
Rights of Shareholders
The Indian Companies Act 2013

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