Minority shareholder's remedies in corporate law
University of British Columbia
Master of Laws - LLM
Investment in the corporate venture may sometimes be a risky venture for the minority shareholders. Apart from the business risk of the undertaking, there is also the risk of disagreement within the corporate organization. The interests of minority shareholders has often been made virtually worthless by the machinations of those in control of the corporation. They are often deprived of any income from the corporation either in the form of dividends or salary, they are not allowed any effective voice in the business decisions and they are denied any information about corporate affairs. Often, they are eventually eliminated from the corporation at a fraction of the real value of their interests. Conflicts of interests which exist or develop among the shareholders constitute a threat to the success of the venture. In the absence of protective mechanisms, control is in the hands of the holders of the majority of the corporation's voting shares. While remedies do exist in the law for problems which arise unexpectedly, much could be done at the inception of the business venture to reduce the possibility of conflicts of interests arising. Careful planning in the initial periods of the incorporation of the corporate organization will do-much to reduce the risk to investors and provide them with a structure for their relationships. However, even detailed planned and constructed contractual mechanisms do not always take care of the wide variety and forms which the suppression of minority interests may take. The contractual arrangements may be inadequate to take care of unforeseen future contingencies. Corporate law and the statutory provisions play active role roles here. By providing the statutory remedies, the law enables minority shareholders to either prevent the threat or rectify the abuse of corporate power. But most of these corporate law remedies are surrounded with procedural requirements and other technicalities which may diminish their utility as protective weapons available to the minority shareholders. The purpose of this work is to examine the adequacy of the statutory protections available to the minority shareholders vis-a-vis the private contractual mechanisms which also protect their interests. This study will develop its lines of enquiry by considering the leading schools of thought in corporate law. These schools are the traditional legal view and the economic approach to corporate law. While the traditional approach supports state intervention in the corporate affairs either by regulation or the facilitation of shareholder litigation, the economic approach views the corporation as founded on private contract where the role of the state is limited to enforcing contracts entered into by the participants in the intra corporate contract. Notwithstanding the adoption of contractual mechanisms by the shareholders and the development of the economic approach to corporate law with emphasis on the dynamics of the market forces which align the interests of management with that , of shareholders, this study suggests that minority shareholders still need the protection afforded by the statutes.
Law, Peter A. Allard School of