Mitigating Minority Shareholder Vulnerability: Insight Into Indian Corporate Law

Dhruv Deepak & Parul Kapoor, UPES School of Law, Dehradun

Introduction

Minority shareholders are people or organizations that own a small percentage of a company’s equity, usually with little to no influence over the management or choices made by the company. These shareholders are not to be confused with the majority or controlling shareholders, which include the company's promoters, key managerial personnel (KMP), and direct family members. These individuals possess a sizable investment in the business and frequently have a prominent role in its operations. Retail investors, institutional investors, non- promoter public equity shareholders, and any other non-promoter entities holding firm shares are examples of these shareholders.

The goal of the corporate governance mechanism is to keep an eye on the management and make sure it operates to maximize shareholder wealth. However, the conflict between dominant and minority shareholders causes a different agency problem that leads to corporate governance concerns in India. Abusing the rights of people who are not in charge is an ever-present temptation for those in authority. In the realm of business, this frequently shows up as controlling shareholders or members abusing lesser shareholders or members, in the case of limited liability firms. This mistreatment could be an attempt to deprive a minority shareholder of the value and benefit of their interest or to force them to sell it at a significant discount.