A Question of Corporate Law - Literature review Example

A Question of Corporate Law Alexis de Tocqueville contended there was little tolerance of minority opinion in democracy Public opinion is seen as so genuine that it has a greater power than other types of governance. Such government is also exposed to the caprice of the masses. The principle is that the wellbeing of the several is to be favored over those of the marginal. A consequence is that a person at odds with an autocratic government cannot find asylum anywhere. Condemnation against dissidents is harsh. The body is liberated but the mind imprisoned. The crushing power of the majority is its capacity to shun. It tends to inflict compliance, and the citizen abdicates liability for exercising political inquiry adopting majority opinion as his own. To de Tocqueville, that is a burden of democracy. Limitless influence is dangerous because utter control is the origin of oppression. If a people are mistreated, the only place to turn is the majority. These foibles of democratic institutions are no less so in corporate governance. Here, we critically analyze the following statement: If the majority are abusing their powers and are depriving the minority of their rights, the minority is entitled to maintain their rights.2 MacDougall v Gardiner clarified the principles of majority rule. If the grievance of a minority is about something to which the majority of the company has privilege or has done unevenly a meeting may be called, and the majority ultimately gets what it wants. Over the years, the principle of majority rule has become more inclusive, however. We recount some of the more representative policies to make our assessment of the historic nature of the question at hand. A place to start is the generally accepted structure of corporate membership. Members of a corporation have rights against each other and against the business as outlined the company's charter.3 As such minority shareholders usually accept they cannot command the overall control of the organization and must accept the will of the majority rule. Majority rule can be wicked especially when there is a single controlling shareholder. Many exceptions have developed relative to the broad standard of majority rule. Here are some of the more common: Where the majority votes to carry out deception against the minority, judges may allow the minority to sue. Everyone maintains the right to file suit if the majority invades personal rights or, for example, where the company's dealings are not accordance with the company's foundation. It is possible for minority shareholders to secede in the name of the business when the company is controlled by the supposed wrongdoers.4 In these matters of rights and ethics, the court is supposed to favor the minority. Court involvement in corporate voting has been minimized over the years though. Corporate law has focused on progressive minority protection and shareholders action, but a majority cannot force a dissentient minority to do that which is not allowed by the charter.5 It must allow the minority to express their opinions on the matter of the meeting, but the minority cannot, irrationally hinder the resolve of the popular vote by filibuster, for example.6 The minority has no right against the majority with respect to actions of which they do not support if the majority is allowed to do them.7 This standard applies where something has been done irregularly which the majority is at liberty to do regularly.8 Nevertheless, the minority may still sue when the majority is abusing power and depriving the minority their rights.9 Again, the court favors the majority while bolstering minority power when there is an ethical question. An example is recounted here. In some proceedings brought by shareholders, claimants have no greater right to relief than the company if rolls were reversed and cannot complain of valid acts done with support of the majority.10 As such, directors are not restrained from making or enforcing calls in good faith. This applies for the use of proceeds or cancelling unissued shares, for example, and will not be interfered with respect to the manner in which profits are calculated and distributed or the place where a general meeting of the company to be held is selected or the drawing up the accounts in accordance with their good faith business judgment. In other words, so long as officers are acting in the interests of the company, it is somehow more allowable to bend the rules. There are safeguards for the minority. Nevertheless, if any member does show that the value of his shareholding has been jeopardized as a result of behavior on the part of the majority, the categories of conduct which may amount to unfairly prejudicial conduct are not closed.11 Examples of common unjustly detrimental behavior follow: a. exclusion from management when company developed upon the understanding of such participation without an offer to buy the petitioner shares at fair value; b. diversion of commerce to another business where majority shareholders hold superior interest; c. awarding by the majority of undue economic remuneration to themselves; d. abuse of power and breaches of charter by laws Ethical considerations win out again. Though many of these would constitute dissolution, injunctivions have been decided in order to maintain operations until a hearing where claimants could voice complaints of breaches in company rules.12 Where the body of shareholders is a central issue in a case, a general meeting might solve nothing.13 Where there is no dispute as to shareholdings, the court has jurisdiction to make an order to normalize the company's affairs a general meeting is convened. Still, a director may uphold an action in his own name in opposition to other directors if he was wrongfully barred from performing in his capacity.14 Except for cases in which shareholder equity is a question, courts have acted to maintain corporate function, and any officer may act in his own behalf if necessary. Let us review a case study. Claimants C and R who sought injunctive relief of resolutions made at general meetings. 15 C and R are company directors. The only other director is B. The corporation had registered office in England but was located in India. Until December 2008, company rules stipulated the assembly of a general meeting and passed a resolution that such meeting required the approval of two directors. In a series of meetings that month, C and R were removed as directors and replaced with five others. The corporate rules were modified to require that further resolutions and be approved by five members of the board. Some shareholdings were forfeited and the secretary replaced. B had chaired the meetings at which each of these resolutions was passed. C and R were not present at any of them and sought affirmation that the resolutions were invalid on grounds they had not accepted the convening of meetings or resolutions purported. They uphold B forged their signatures in order to move majority ownership to his control. B's point was C and R was aware of what had happened and had participated in the events up to and including their resignation from the Board. He argued: (1) The actions were misconceived because many of C and R's complaints could be rectified at a general meeting; (2) The court lacked jurisdiction on the ground that India was the forum conveniens. Corporate directors normally owe their duties to the company and to no one else.16 A violation of any such duty may only be redressed by a stroke brought by the company itself. This is the so-called "rule in Foss v. Harbottle." This has become the standard that the courts will not interfere with the internal management of companies acting within their powers and have the authority besides. It is recognized that where the wrong committed by the company may be excused by an ordinary resolution of the shareholders in general meeting and the courts will not interfere. This notion in gives corporation greater rights than a citizen as long as it acts in its own interest. We found the court has maintained a laissez faire attitude when it comes to corporate governance. Critical analysis has revealed certain ideas. If the majority is abusing power and depriving the minority of rights, the minority is entitled to maintain their rights.17 In practice, this ideal has met some limitations. Majority rule is honored except in cases of certain interpersonal, economic, legal, and ethical instances - but not that involving shareholder equity. As long as a corporate officer acts in the interest of the company, the minority has almost no voice. Ironically, it has even less when the question is about corporate ownership. Perhaps Alexis de Tocqueville was right when he argue there was little tolerance of minority opinion in democracy.18 Civic belief is seen as so indisputable that it has an almost limitless power. It is also exposed to the might-makes-right ideology. The principle that the wellbeing of the several is to be favored over those of the marginal is carried out ad absurdum. A consequence is that a person opposed to an oppressive government cannot locate refuge anywhere. Disapproval against dissidents is so harsh it is as if the psyche is captive. It becomes almost cultic in nature. Even if wrong the majority is free to levy mores such that an innovative voice is stifled by shame or punishment. This severe power of the majority is its aptitude to shirk. It tends to impose conformity, and the citizens relinquish responsibility for exercising political investigation and adopt majority opinion as their own. To de Tocqueville, that is a burden of democracy. Boundless pressure is hazardous because total power is the source of tyranny. If a people are mistreated and the only place to turn is the abuser, where is the freedom It has been the aim of business law to maintain the ideals of democratic egalitarianism. Granted, they have done so with a particularly capitalist stance, but it is a work in progress, and in most cases some regulation is better than none. References Burland v Earle (1902) AC 83, PC Choudhary v Bhattar (11 February 2009) LTL 18/3/2009 Chancery DivisionDavid Donaldson QC Democracy in America, Volume I, Chapter XV Foss v Harbottle (1843) 2 Hare 461 http://www.focus-on-business.com/HTML/legal.html Lord v Governor & Co of Copper Miners (1848) 2 Ph 740 MacDougall v Gardiner (1875) 1 ChD 13, CA Owusu v Jackson (t/a Villa Holidays Bal Inn Villas) (C-281/02) (2005) QB 801 ECJ Pulbrook v Richmond Consolidated Mining Co (1878) LR 9 Ch D 610 Ch D Rider, A. K. B. (1978) Amiable Lunatics and the Rule in Foss v Harbottle in The Cambridge Law Journal, 37:270-287 Simpson v Denison (1852) 10 Hare 51 at 55 Speed Investments Ltd v Formula One Holdings Ltd (No2) (2004) EWCA Civ 1512 Wall v London and Northern Assets Corpn (1898) 2 Ch 469, CA Read More