Introduction
In modern corporate practice, the protection of minority shareholders has become a cornerstone of sound corporate governance. As companies grow and decision-making becomes increasingly centralized in the hands of majority shareholders or controlling directors, the risk of marginalizing minority interests also rises. Without adequate legal safeguards, minority shareholders may be subjected to unfair treatment, exclusion from vital corporate decisions, or even economic oppression. In response to these concerns, corporate laws have developed to provide a robust legal framework aimed at ensuring minority shareholders have a voice and can seek redress when their rights are violated. This framework not only preserves the integrity of corporate governance, but also promotes investors trust, market fairness, and long-term business sustainability.
This article examines ways in which injustices committed against a company can be addressed, with particular emphasis on the legal remedies available to minority shareholders in a company.
Who are Minority shareholders
The Company and Allied Matters Act did not expressly define minority shareholders. However, the Court of Appeal in Okoye & Anor v. Ecobank & Anor[1], defined minority shareholder as a shareholder who owns less than half the total shares outstanding and thus, cannot control the corporation’s management, or single-handedly elect directors. A minority shareholder is also defined as a person who does not have control over a company. Typically, the minority shareholder has less than 50% of the company’s voting shares[2].
Majority Rule
The principle of majority rule holds that, in cases involving a wrong done to a company or an association of persons, the proper plaintiff to bring an action is, by default, the company or association itself. As a general rule, courts will not interfere in the internal affairs of a company at the behest of minority members, particularly where the irregularities complained of are matters that the majority can lawfully undertake or rectify[3]. Section 341 of the Companies and Allied Matters Act (CAMA) 2020[4] enshrines this principle, stating that any irregularity or wrongdoing committed during a company’s operations must be remedied by the company itself. In other words, only the company has the legal standing to initiate proceedings to correct the wrong or irregularity. Section 341 CAMA 2020 is reproduced as follows:
“Subject to the provisions of this Act, where an irregularity is made in the course of a company’s affairs or any wrong is done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct”.
This doctrine was first established in the famous English case of Foss v. Harbottle[5]. This position was also reaffirmed by the Supreme Court in APC v. Moses[6], where the court emphasized that it is not the role of the judiciary to manage or interfere with the internal administration of an association. whether corporate or unincorporated. The underlying rationale is that voluntary associations are governed by the will of the majority, and any disputes arising within such bodies should be resolved according to the majority’s decision. This rule also upholds the principles of corporate legal personality, as seen in Salomon v Salomon[7].
The rationale for this rule includes:
- Recognition of Corporate Personality: The company is a distinct legal entity and thus must act in its name.
- Avoidance of Multiplicity of Suits: This prevents every shareholder from bringing separate actions on the same issue.
- Rectification at General Meetings: Shareholders can, through resolutions passed at general meetings, correct the improper conduct of directors.
- Preservation of Corporate Democracy: It reinforces the majority rule in the internal governance of companies[8].
When Minority Shareholders Can Intervene: Exceptions to the Rule in Foss v. Harbottle and Section 341 of CAMA 2020
Despite the general principle favouring majority control, the law provides for exceptions that empower minority shareholders to act when the majority’s conduct threatens their rights or the interests of the company itself. Under Section 343 of CAMA 2020. A shareholder may apply to the court to prevent company officers from engaging in conduct that is contrary to law or company regulations. The court may grant injunctive or declaratory relief restraining a company or its officers from;
- Entering into any transaction which is illegal or ultra vires.
- Purporting to do by ordinary resolution any act which by its articles or this Act is required to be done by special resolution.
- Any act or omission affecting the applicant’s individual rights as a member.
- Committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done
- Where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders
- Where the directors are likely to derive a profit or benefit, or have profited or benefited from their negligence or from their breach of duty; and
- Any other act or omission, where the interest of justice so demands[9].
Eligible Parties to Sue for redress
Legal actions under these exceptions may be instituted by:
- Any shareholder or member
- Legal representatives of deceased members
- Individuals to whom shares have been legally transferred
- Anyone who holds title through operation of law.
Reliefs on grounds of Unfairly or Oppressive Conduct: The law allows a petition to be brought against a company by a member who has suffered from unfair, discriminatory, or oppressive conduct by the company’s management or other shareholders[10]. Such members may, on their own or through their legal representatives or transferees, file a petition against the company[11] and the court, upon satisfaction, may grant orders as it may think fit, for giving relief in respect of the breach complained of[12].
The court may make orders, including:
- Winding up of the company
- Regulation of the company’s affairs
- Mandatory purchase of shares by other members or the company
- Directing the company or its officers to commence or discontinue specific proceeding[13].
Investigative Powers of the Corporate Affairs Commission (CAC)
The Commission (CAC) is vested with the authority to initiate investigations into the affairs of a company[14]. Such investigations may be commenced suo motu by the Commission, upon the application of the company itself, or at the request of a member or members holding not less than one-tenth of the issued share capital of the company. The Commission may appoint inspectors to investigate a company’s operations, either upon the application of members holding at least one-tenth of the issued share capital, or on request by the company itself[15]. Applicants must show credible evidence for requiring an investigation to be conducted into the company’s operation[16]. Inspectors are mandated to protect whistleblowers, and where employees are dismissed due to their cooperation with an investigation, they are entitled to full compensation, as if they had retired or completed their employment terms[17].
Derivative Action
A derivative action constitutes a statutory remedy whereby a minority shareholder institutes proceedings on behalf of the company against its directors, officers, or majority shareholders, who are alleged to have perpetrated acts detrimental to the company. This legal mechanism is vital in instances where the company, due to internal conflicts of interest or control by the alleged wrongdoers, is incapacitated from initiating such proceedings independently. The action is not for the enforcement of the personal rights of the shareholder but undertaken in the company’s name and for its benefit[18].
Right to Exit (Buy-Out Orders)
In appropriate circumstances, where it is just and equitable to do so, the court may issue an order compelling the company or the majority shareholders to purchase the shares of minority shareholders at a fair and equitable value. This form of relief is particularly significant in closely held companies where minority shareholders may otherwise have no practical means of exiting the company. Buy-out orders are designed to prevent continued oppression and ensure a fair exit strategy for dissenting or aggrieved minority shareholders.
Inspection of Company Records
Minority shareholders possess the statutory right to apply to the Federal High Court for an order permitting them to inspect the books and records of the company, including but not limited to financial statements, minutes of board meetings, and other vital corporate documents. This right of inspection is fundamental to the principles of transparency and accountability and serves as a vital tool for detecting corporate malfeasance or managerial impropriety.
Court-Ordered Meetings
Where it becomes impracticable for minority shareholders to convene a general meeting due to obstruction by the board of directors or the majority shareholders, an application may be brought before the court to authorize the calling and conduct of such a meeting. Court-ordered meetings ensure that the minority shareholders are not disenfranchised and can effectively participate in the governance and decision-making processes of the company.
Implications for the protection rights of minority shareholders:
- Market distrust: Where investors feel that their rights will not be respected, they may shy away from investing, affecting capital attraction and company valuation.
- Internal conflicts: Lack of protection can lead to internal conflicts, distracting company resources and time, and affecting its productivity and reputation.
- Biased decisions: Without proper protection, corporate decision-making risks being biased towards the benefit of a few, which can lead to sub-optimal and possibly damaging decisions in the long run.
- Legal protection of minority shareholders is not only a matter of fairness and ethics, but also a smart strategy to strengthen the business fabric, encourage investment, and ensure the long-term sustainability and health of our corporations[19].
Conclusion
Minority protection under the law serves as a crucial safeguard in promoting equitable treatment, accountability, and good corporate governance. Recognizing the inherent power imbalance between majority and minority shareholders, the law, particularly under the Companies and Allied Matters Act (CAMA) 2020, provides statutory remedies to prevent abuse of power, oppression, and mismanagement. Provisions such as Sections 343 and 344[20] empowers minority shareholders to challenge unfairly prejudicial conduct and institute derivative actions on behalf of the company.
Legal authorities such as Edokpolor & Co. Ltd. v. Sem-Edo Wire Industries Ltd [21]and Yalaju-Amaye v. A.R.E.C. Ltd [22]underscores the judiciary’s readiness to pierce the corporate veil in appropriate circumstances, and where the ends of justice so require. These decisions reaffirm the legal system’s dedication to ensuring equitable treatment and protection of minority shareholders against abuse or injustice by those in control of corporate entities.
REFERENCES
[1] (2019) LPELR -47350 (CA)
[2] Femi Z Ogunlade: The Imperative of Shareholders Participation in Promoting Corporate Governance:
Minority Protection and Majority Rule in Focus.
[3] Yalaju Amaye v Associated Registered Engineering Co. (1990) 4 NWLR 9Pt.145) 442 SC.
[4] Ibid
[5] (1843) 2 KB 461
[6] (2021) 14 NWLR (Pt.1796) 278 at 327 SC
[7] (1897) AC 22.
[8] https://omaplex.com.ng/minority-protection-in-the-corporate-sector/
[9] Section 343 CAMA 2020
[10] Section 353(1) CAMA 2020
[11] Section 353(2)
[12] Section 355(1), CAMA 2020
[13] Section 355(2), CAMA 2020
[14] Section 358 CAMA 2020
[15] Section 357 (1) & (2) CAMA 2020
[16] Section 357 (3)
[17] Section 357 (4) & (5) CAMA 2020
[18] Sections 344 & 346, CAMA 2020
[19] https://www.linkedin.com/pulse/protection-rights-minority-shareholders-nigeria-3gctf/
[20] CAMA 2020
[21] (1984) CLR 7b (SC)
[22] (1990) 4 NWLR 9Pt.145) 442 SC.