LEGAL AND REGULATORY FRAMEWORK FOR PROTECTION OF MINORITY SHAREHOLDERS IN INDIA

Abstract

In the recent times, corporate governance has gained significant attention and focus across the globe. Sound corporate governance norms are of utmost importance for developed as well as developing nations to achieve their economic goals. One of the most essential requirements of a sound corporate governance system is that the rights of shareholders should be effectively protected and they should be allowed to participate and influence the corporate strategic decision- making.

Shareholders invest their money in a company and in return the company issue shares to them. The ownership of shares entitles the shareholders to certain rights. Though they do not control the company directly but still they are considered to be the real owners of the company. Thus, it becomes imperative to protect the rights of the shareholders as they are the real contributor of the capital of a company. Protection also becomes important because company is a business structure that covers different classes of people and has more than one owner. Efficient protection of shareholders rights can be achieved only if there is a law that provides for such protection. Thus, there is legal as well as actual aspect of shareholders protection. The legal aspect i.e. protection of shareholders as given under the law determines the position of shareholders in the law and the various accompanying rules and regulations. Shareholders play a very crucial in a company and hence their protection is important. It is always seen that in almost all the areas majority usually dominates the minority and so is in the case of the shareholders. The interests of minority shareholders are tend to be overshadowed by the over-powered majority shareholders or promoters of the company. Though there are certain rights granted to minority shareholders under the legal regime still they become a subject of dominance by the majority shareholders and the company. Henceforth, the protection of minority shareholders becomes all the more important. Protection of minority shareholders can have some major effect on the valuation of the firm.While numerous factors play into whether a country has a dynamic financial market, there’s one in particular that stands out. Countries that offer a legal framework to protect minority shareholders tend to have more robust markets because investors are more willing to take risks.

 In India, the shares of a Company are held predominantly by the promoter or their near and dear ones or sometimes also by their foreign business counterparts either in the form of investment or through institutional investments. Nevertheless, this does not mean that company should turn a blind eye to the interests of the minority shareholders of the company. 

Before dealing with the rights of minority shareholders in detail let us first look into the meaning of shareholders and minority shareholders.