Majority Rule And Proper Plaintiff Rule In Foss V. Harbottle

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The issues are whether there is an exception regarding to the majority rule and proper plaintiff rule in Foss v Harbottle?

In the cases of Foss v Harbottle provides two types of rule which is “majority rule” and “proper plaintiff rule”. “Majority rule” is the majority shareholder decisions and choices over the minority shareholders. The majority votes from the shareholder within the company are ¾ of voting rights which is 75 %. The greater the majority rights and power of shareholder over the minority shareholder, hence the minority shareholders have to accept the decisions and choices by the majority shareholder. Meanwhile, for “proper plaintiff rule” in Foss v. Harbottle any wrongdoers are not liable to the action of the company for any
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Harbottle is ultra vires or illegal. According to Section 20 (1) Companies Act 1965 no act purported act of a company including the entering into an agreement by the company and including on behalf of a company by an officer or an agent, whether by express or implied by the reasons only the fact of the company was without the capacity or power to do the act. Since ultra vires exceptions is the important in determining whether the company has acted beyond the capacity or illegal. On the other hand, the directors or an officer has acted beyond their capacity of the company and transaction was void. Besides that, the ultra vires exception is to protect the company shareholder and creditors from illegal activities. They also have the rights to know where their money is invested and what kind of funds related in financing their debts and which funds is allowed outside the activities of company. In the cases related, Ashbury Railway Carriage & Iron Co v Riche (1875) has stated that in their Memorandum of Associated (MOA) were to make, sell and lend on hire and all kinds of railway equipment, but what did happened is the mechanical engineer and the general contractors has purchase all the railway equipments and suppliers other material of construction of railway. The court held in this cases included in Memorandum of Association was ultra vires not only of the directors but the whole company. Hence, the shareholders do not have a power to …show more content…
Harbottle are fraud on the minority. This exception is when the fraud is happen on minority or offender in the act of company control, the minority member can brings the actions to enforce the company’s right. According to Kershaw (2013), at common law derivative actions can only be brought in relation to certain wrongs which disloyally, serve the director’s personal interest. This wrong is often referred to fraud. In another meanings of derivative actions, according to Sulaiman and Bidin (2008), states that derivative actions is brought by a member, but is based on legal action which the company has. For an example, a breach of duty owed to the company. Besides that, according to Sulaiman and Bidin (2008) there is an elements of fraud on the minority which the applicant cannot rely on the exception to the proper plaintiff rule to bring a derivative action on behalf of the company unless if the wrongdoer who is in control of the company has obtained benefit at the company’s expense and the wrongdoer has majority votes to prevent the company from suing. In the related cases is Cooks v Deeks (1916), the majority shareholder has diverted the company’s business to another business excluding the minority shareholder. On the facts of cases, the minority shareholder has sued them on the profit that they have made. The issues here, whether the company can ratifies the diversion of contract. The court held is they cannot

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