CONTRACT LAW

Contract Law: Protection of Minority Shareholders & Stakeholder Argument

Table of Contents

Introduction3

Efforts by Other Legal Systems in Minority Protection3

Discussion Analysis3

Minority Shareholder Protection in Law8

Minority Shareholder in the Corporation10

Conclusion11

Contract Law: Protection of Minority Shareholders & Stakeholder Argument

Introduction

When discussing the issue of protection for minority shareholders, the following question is inevitably posed: why does the company law offer minority shareholders special protection, if the parties are merely following the majority rule (for majority shareholders') or if they are exercising managerial power (mainly for directors mainly), two practices that which are totally lawful?

Efforts by Other Legal Systems in Minority Protection

In order to improve minority protection, various mechanisms have been designed using judicial and legislative means. The judicial and the legislative have often resorted to such theoretical tools as the fiduciary duty towards minority shareholders, the theory of abuse of power, the reasonable shareholder expectations.

UK judges before the 1989 amendments to the Companies Act 1985, were quite conservative in their consideration of minority protection although they were amongst the first to allow a remedy for unfair prejudice. The judges generally followed a rigid "handoff' and "right" approach, "saying that they were powerless to deal with the internal management of corporations." The rigorous rule decided in Foss v. Harbottle', which prevented shareholders from bringing suit for the harms inflicted upon the corporation, was very influential for centuries. Although judges, at a later date, made limited exceptions where shareholders were allowed to bring such suits, the complexity and limited applicability of these exceptions remained barriers to an accepted notion of minority protection.

Discussion Analysis

In the upcoming paragraphs, the information related to both clauses of UK's Corporate Law will be discussed in the following paragraphs. The two clauses mentioned in the preceding paragraph are 213-214 Insolvency Act 1986 and 177 Companies Act 2006. All the information related to their background, application and the benefits it provides to companies under differing circumstances would be discussed in detail. However, the main focus of this research is on the liquidation, so the entire information related to this concept would be covered in detail. The requirements and conditions that must be met for liquidation would be discussed thoroughly in the upcoming paragraphs. Recent years have seen a significant rise in personal insolvencies, in many outstanding economies. In the US, for example, rates of filing for non-business bankruptcy rose from 15 to 54 persons per 10 000 population from 1980 to 2004, whilst, in Canada, personal bankruptcies grew by 87 per cent over the period 1990-2007. Similarly, there was a staggering 350 per cent increase in bankruptcy, in Australia, over the 10 years from 1988 to 1998, and, in England, and, Wales, individual insolvencies rose from an average of 7000 per annum in the 1980s to 27 500 in the 1990s, and, then to more than 100 000 in 2006, and, 2007.

Traditional explanations of insolvency, which regard it as something 'forced' on individuals by unforeseen events that impact on an individual's financial position, have only been partially successful in ...