What legal entitlements do shareholders have? The entitlement of a shareholder in a company to commence a legal action, in circumstances where he or she believes they have been wronged in their capacity as shareholders, is somewhat limited by case law.

It is previously established that, where an event occurs that has an adverse consequence for a company, such as would give rise to a cause of action, the entitlement to commence legal proceedings lies in the company itself, rather than in any individual shareholders.

There are some exceptions to the above rule, one of which is provided for by Section 205 of the Companies Act 1963.

The section effectively provides a legal remedy for any shareholder who believes that the affairs of the company are being conducted in a manner which is oppressive to him/her, or where the affairs of the Company are being conducted in a manner which disregards the interests of that person.

A good example of where a shareholder may utilise this procedure would be, for example, where the Board of a company agrees to sell lands or assets of the company at what a shareholder believes to be a significant undervalue.

In other instances the Court have found that the enactment of Section 205 of the Act allowed the Court, in an appropriate case, to restrain a company from removing a Director pending the hearing of a Petition under that Section.

In that instance the minority shareholder was also a Director in the company who relied on the Section to protect his own position.

Powers of the Court where shareholder interests are affected
The Court has the power to make such order as it thinks fit. For example it can

1. Prohibit any act of the Company
2. Cancel any transaction of the company
3. Make orders relating to the purchase of the shares of any member of the company by other members of the company.

The Section therefore allows for a wide scope of legal remedies to be sought, and could be relied upon in many circumstances of oppression or disregard of a minority shareholder's interest.

Please note that this article is for information purposes only and does not constitute legal advice.

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