Pembridge Solicitors are a UK based law firm specialising in Company Law.
Members of a company generally have rights against each other and against the company, as framed under the company’s constitution. However, members cannot generally claim against third parties who cause damage to the company which results in a diminution in the value of their shares or others membership interests because this is treated as “reflective loss” and the law normally regards the company as the proper claimant in such cases.
In relation to the exercise of their rights, minority shareholders usually have to accept that, because of the limits of their voting rights, they cannot direct the overall control of the company and must accept the will of the majority (often expressed as majority rule). However, majority rule can be iniquitous, particularly where there is one controlling shareholder. Accordingly, a number of exceptions have developed in law in relation to the general principle of majority rule.
Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the minority, the courts may permit the minority to sue
Members always retain the right to sue if the majority acts to invade their personal rights, e.g. where the company’s affairs are not conducted in accordance with the company’s constitution (this position has been debated because the extent of a personal right is not set in law). Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in this area.
In many jurisdictions it is possible for minority shareholders to take a representative or derivative action in the name of the company, where the company is controlled by the alleged wrongdoers
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