Comparing Foss V Harbottle Rule And Derivative Action

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The protections under the Corporations Act suffice to guard the minority from the majority’s unfair wrongdoing. In fact, the Australian corporate law provides significant protections on shareholders. To support the argument, this essay discusses Foss v Harbottle rule and derivative action. It also elaborates exceptions to the rule, especially ‘fraud on the minority’ and statutory protections available for the minority protection under the Corporations Act. These are analysed in views of organic theory, economic theory and aggregate theory. It concludes with that specific protections for the minority are unnecessary because these may lose the balance of a corporation and the minority and majority members.

Minority shareholders’ right to Derivative Action
Foss v Harbottle case was a foundation of development of derivative action that enables a minority shareholder to bring a legal action in order to recover from a wrong done to the company. Two principles, so-called Foss v Harbottle rule, were made to corporate law in related to a minority shareholder’s right. The first principle was the internal management rule preventing floodgates open to multitude actions by individual shareholders dissatisfied with operation of a company. Under the internal management rule, complaining on internal management by minority shareholders was taken by a board of directors. A decision for the complaint was also decided by the majority rule. The second principle was the proper

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