When people buy shares, they often have long-term goals like securing a retirement fund. For many, especially public servants and those with limited income, these investments are a personal commitment, made with hard-earned savings.
Yet, minority shareholders often feel helpless and unheard, with little influence on corporate decisions. This imbalance leaves them vulnerable to decisions that may not align with their interests. To address this, there are laws that protect minority shareholders from exploitation and neglect. This article explores minority shareholder rights, the challenges they face, and the legal options available to them.
Who are Minority Shareholders and What are the Challenges They Face?
Minority shareholders are individuals or groups that own a small portion of a company’s shares, typically less than 50%. They are often individual or retail investors, like employees, pensioners, or ordinary citizens who have put their savings into the company. With limited access to information and little say on the board, they face challenges in protecting their interests.
Minority shareholders risk being overlooked in dividend decisions, as the board and majority shareholders may prioritize other interests. They also have little power to influence company direction, prevent conflicts of interest, or stop risky decisions.
With limited board representation, access to information, and influence on key decisions, holding the board accountable is challenging, leaving minority shareholders vulnerable to exploitation. To protect them, the law allows minority shareholders to take action if the majority acts against the company’s best interests.
What Protections Do Minority Shareholders Have?
The Companies Act, 2019 (Act 992) provides a regulatory framework to protect minority shareholders and promote fair corporate practices. But do they go far enough? Let’s dive into the main protections:
Corporate Rights: Minority shareholders have key rights, regardless of their shareholding size. They can attend and vote at meetings, receive timely notices, and challenge actions against their rights. They can also sue the board for violations of the company’s constitution.
If minority shareholders sue, the court can grant an injunction to stop illegal actions by the board or company. If the wrongdoing has already happened, the court can void the act and order a reversal, canceling decisions or restoring the previous state. These measures help minority shareholders prevent abuse of power and ensure fair, lawful company operations.
Representative Action: This unique provision allows one shareholder to sue on behalf of all affected shareholders where there is a breach of corporate rights or harmful board conduct. This helps minority shareholders hold the board accountable without needing approval from others, ensuring their voices are heard.
Protection Against Oppression: If a company’s actions are oppressive or discriminatory, minority shareholders can seek court intervention. Oppressive in the sense that the actions are harsh, unfair, and heavy-handed, ignoring the rightful expectations of minority shareholders. The court can order the company to take specific actions, block harmful transactions, or adjust current ones.
Derivative Action: When the board overlooks harmful actions, minority shareholders can apply to the courts to sue on behalf of the company, ensuring its rights are protected. Once granted the shareholders can take legal action in the company’s name.
Buy-Out Remedy: If minority shareholders disagree with major decisions like mergers, they can request the company to buy their shares, providing them with an exit option and fair compensation. Companies must comply with buyout requests, unless exempted by a court.
Activism for Stronger Minority Representation
The Organization for Economic Co-operation and Development (OECD) has long championed the protection of minority shareholder rights. Its Corporate Governance Principles stress that investors need confidence their capital will be safe from misuse.
When corporate governance fails, controlling shareholders and managers may put their interests first, leading to unfair practices like self-dealing, high executive pay, and biased decisions. The OECD warns that exploitation grows when those in control have too much power without enough accountability. To prevent this, minority shareholders need strong ways to take legal action and be heard.
So, what’s the solution? To prevent exploitation, minority shareholders can engage in shareholder activism. This includes:
Pursuing board representation through reserved seats. Italy and Brazil have implemented mandatory board representation in certain companies, yielding positive results.
Building alliances with independent directors. This teamwork allows independent directors to protect the rights of minority shareholders, creating a fairer corporate environment.
Forming shareholder groups, as seen in South Korea, to consolidate votes and demand accountability.This grassroots movement has become a strong example of community action, pushing for changes in how companies are run. In Ghana, coming together can help minority shareholders stand up for their rights, which are often overshadowed by bigger shareholders. By teaming up, they can make their voices louder, protect their interests, and create a fairer business environment.
Alhassan Aboagye on behalf of OSD & Partners
