Protecting interest of the minority Shareholders

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Protecting interest of the minority Shareholders

M S Siddiqui
Legal Economist and pursuing PhD in Open University, Malaysia e-mail:

The over-investment by directors is not good for the stock market and it should be addressed properly to find a way out and safeguard interest of minority shareholders from the experience of other markets, writes M S Siddiqui………………. In Asian countries including Bangladesh, the controlling ownership of public listed companies are dominated by some families. The problem of minority exploitation may arise when the ownership is highly concentrated in any specific group, especially family ownership. One of the consequences
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The distinguishing factor between the two is the degree of control over the corporation. The number of shares owned is not decisive, even a shareholder owning a majority of shares may be a minority shareholder, if other shareholders are well organized and, thus, control the company.

The company must follow the principles ‘partnership’ and consultation aims at balancing the interest between major and minor shareholders, and usually do not infringe minorities rights through guaranteeing at least the following minority rights such as respect of opinion of major shareholders toward minorities, the right of minorities to be heard on regard of business matters and exit rights.
The limited Liability Companies, which are, in practical terms, run, as if they were a partnership, between the persons who are shareholders of same, might be regarded by the law, as "quasi partnership".

The OECD principles on Corporate Governance (2004) provide that: Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

The protection comes from better legal protection, stronger structure of the internal control mechanisms and more efficient capital markets and market for corporate control. One of the methods to ensure the minority rights is to follow good Corporate Governance
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