UNIT 9

MINORITY PROTECTION

In corporate governance, minority protection refers to the legal safeguards available to shareholders who hold a smaller portion of a company’s shares. These shareholders may not have enough voting power to influence key decisions, but the law offers several mechanisms to protect them from being unfairly treated or sidelined by the majority shareholders. The protection is categorized into statutory and common law protection.
Statutory protections includes the following:

1. Oppression and Unfair Prejudice: See section 353 of the companies and allied matters act (CAMA) 2020 which provides protection against actions that are oppressive or unfairly prejudicial to minority shareholders. Minority shareholders can apply to the court for relief if they believe the affairs of the company are being conducted in a manner that is unfair or oppressive to them and the case of Olatunji v. Gbadamosi (2014) LPELR-23053(CA) where the court noted that minority shareholders are entitled to approach the courts if they believe the majority is acting in a way that is oppressive or prejudicial to their interests.
2. Derivatives actions: A minority shareholder can bring a derivative action on behalf of the company if the directors or majority shareholders are acting in a way that harms the company. See section 341 of CAMA 2020 which provides that this is permissible in instances where the wrongdoers are in control of the company, and the company itself is unable or unwilling to take action and the case of Okomu Oil Palm Co. Ltd v. Iserhienrhien (2001) 6 NWLR (Pt. 710) 660 where the supreme court held that derivative actions can be brought by shareholders to remedy wrongs done to the company, which may otherwise go unaddressed if the controlling majority refuses to act.
3. Minority buy-out: See section 712 of CAMA which allows minority shareholders to require the company to buy out their shares in certain situations, particularly when the majority has acted in a manner that is oppressive or unfairly prejudicial. This provision prevents majority shareholders from forcing minority shareholders to remain in a company against their will under unfavorable circumstances.

Common law protections includes the following:

1. Foss v. Harbottle Rule: Under common law, the Foss v. Harbottle rule, as adopted in Nigeria provides that the company itself is the proper claimant in any wrong done to the company. However, there are exceptions to this rule which allow minority shareholders to sue. One key exception is when the act complained of is illegal or ultra vires, meaning beyond the powers of the company. See the case of Edokpolo & Co. Ltd v. Sem-Edo Wire Ind. Ltd (1984) 7 S.C. 119 where the court held that minority shareholders could sue in certain situations, especially when there is an infringement on their personal rights or when a fraud is being perpetrated by those in control.
2. Personal action: Minority shareholders can also bring personal actions to enforce their personal rights, such as voting rights or the right to receive dividends. See the case of Abubakri v. Smith (1973) 6 S.C. 31 where the supreme court recognized the right of a shareholder to sue when his personal rights as a shareholder are infringed.

CORPORATE SOVEREIGNTY

Corporate sovereignty refers to the principle that a company, once incorporated, becomes a separate legal entity distinct from its shareholders and directors. This principle is fundamental to corporate law and allows companies to own property, sue, be sued, and enter into contracts in their own name. See section 42 of CAMA 2020 which enshrines the principle of corporate sovereignty by stating that upon incorporation, a company becomes a body corporate with perpetual succession and a common seal. This gives the company a legal personality separate from its shareholders. See the landmark case of Salomon v. A. Salomon & Co Ltd (1897) AC 22 which is the origin of this principle, and it has been recognized and applied by Nigerian court and also the case of Marina Nominees Ltd v. Federal Board of Inland Revenue (1986) 2 NWLR (Pt. 20) 48 where the court reaffirmed that once a company is incorporated, it is a separate legal entity distinct from its members.

CORPORATE POWERS

1. Ultra vires doctrine: Corporate sovereignty also means that companies are bound by their object clauses and cannot engage in activities outside the scope of their powers (ultra vires). See section 39 of CAMA 2020 which has largely abolished the ultra vires rule, allowing companies to engage in lawful business activities unless restricted by their articles of association and the case of Ashbury Railway Carriage and Iron Co. Ltd v. Riche (1875) LR 7 HL 653 where the ultra vires doctrine was firmly established. Although this case originated in England, Nigerian courts have applied the doctrine, though it has now been relaxed under modern statutory law.
2. Lifting the corporate veil: While corporate sovereignty allows a company to act independently, there are instances where courts may "lift the corporate veil" and hold shareholders or directors personally liable. See section 92 of CAMA 2020 which provides for this in cases where the company is used for fraudulent or illegal purposes and the case of Dabiri v. Nigeria Distilleries Ltd (2007) 28 WRN 67 where the court of appeal held that the corporate veil could be lifted to hold individuals accountable when the company is used to perpetrate fraud.

IMPLICATIONS OF CORPORATE SOVEREIGNTY

1. Corporate property: Since the company is a separate legal entity, it owns its property and assets. Shareholders do not have a direct interest in the company’s property. See the case of Bolarinwa v. Aromolaran (2004) 3 NWLR (Pt. 860) 367 where the court reiterated that the property of the company belongs to the company, not the shareholders.
2. Contracts and liabilities: A company can enter into contracts in its own name and is responsible for its own debts. Shareholders are not liable for the company’s obligations beyond their shareholdings, emphasizing the limited liability concept. See the case of Adebisi MacGregor Associates Ltd v. Nigeria Broadcasting Corporation (1999) 14 NWLR (Pt. 638) 386 where the court upheld the principle that a company is responsible for its liabilities, and shareholders cannot be held liable for the company's debts.

CONCLUSION

These principles of minority protection and corporate sovereignty are key components of corporate governance in Nigeria. They ensure that companies operate fairly and independently, while providing avenues for minority shareholders to seek redress when necessary.