Business law- legal issue Essay Example | Topics and Well Written Essays - 1500 words

Business law- legal issue - Essay Example A problem usually arises where promoters of a limited liability with different financial muscles and capabilities are unable to agree on corporate affairs. Majority shareholders may think of excluding the minority shareholders and they begin carrying out the activities of the corporate as their individual business but under the veil of incorporation. The minority shareholders are such that if they hold less than 50% of the share of the company and they do not have controlling shares. Also they could also have majority shares but without a voting right. It is at this juncture that the minority shareholders may feel that there is unfair treatment and by the majority shareholders (Joffe, 2011). The minority shareholders are likely to seek various remedies available to them under the law. Minority shareholders may be oppressed in various ways which include but not limited to the; denial of involvement in management of the company, denial of fringe benefits such as scholarships by the com pany, denial of business with the company even where they don’t participate in the procurement and tendering process. The majority shareholder may also misapply the funds and capital of the company for their own benefit to the detriment of the company and minority shareholders. ... The first remedy may involve a derivative Suit. This is as general rule where a company should sue and be sued in its own name. The company should protect its own rights from third parties and even from individual officers and majority shareholders. Institution of suit, more often than not will require a resolution of the shareholders or by the directors. However it must be appreciated that a company can only act through its agents to wit directors. However whenever the majority shareholders or directors unreasonably refuses to institute legal proceedings against a party so as to protect the interests of the company, the minority shareholders are allowed to institute a suit so as to protect the rights of the company. Such a suit is known as derivative action. There are a number of reasons why the directors are refusing to initiate proceeding such as the suit would be adverse to one of the directors, or an officer of the company. This suit may also be instituted where the directors ar e in breach of fiduciary relationship (Hughes, Pendleton and Toren, n.d). The shareholder(s) instituting these proceedings must show that their intention is to protect the interests of the company and the suit is not being used to blackmail the company to either do or omit to a thing. The shareholder(s) must also show that the company stands to suffer prejudice if the derivative suit is not instituted. It is important to note that this suit is usually brought under the name of the company at the instance of shareholders against the interest of the majority shareholders and the directors. This suit can also be brought against a director or an officer.