company law print - 1 Introduction The rule set out in Foss...

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1 Introduction The rule set out in Foss v Harbottle is a leading precedent case in company law. According to the rule, the shareholders cannot have separate cause of action in law for any wrong actions which may bring negative influence to the company. It established two rules in company law. First is the proper plaintiff where nobody in the company can sue the company if alleged offense towards the company. Second is the majority rule principle, which is if the alleged wrong can be sanctified by majority shareholders in a GM the court cannot interfere. It brings some practical advantages to the company. The company no need to have multiple suits of shareholders if it sues wrong actions to it. However, the rule also bring unfair treatment to the minority shareholders. The rule is subject to some exceptions which allows minority members of the company to take a legal action on the conduct of the company. And minority shareholders in Malaysia have rights to enforce their rights under company law, shareholders can take a petition based on remedies under Section 181 and Section 218 of the Companies Act 1965 to against the fraud by the majority members. Question 1 In Foss v Harbottle1, minority shareholders of the company sued the directors and some shareholders because of mismanaging and misapplied the company’s property. But the action then was dismissed on procedural grounds and two rules were properly established by the court. The first rule is the proper plaintiff rule,it is an action in relation to a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Because company is a separate legal entity from its members through company law view, hence, the company is regarded as the proper plaintiff. The company should hold its own right.This rule also can be used for the company attempt to recover damage or money alleged to be done to the company. In the case of Bhajekar v Shinkar2 , the court held that the company agreed the resolution, even if it was irregular, those directors could not sue the company. Reason would be the resolution for appointing persons had been passed by the company in general meeting with adequate materials. The company is only legal plaintiff to take legal action to solve the internal legal issues.
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2 The second rule is the majority rule which can be explained as if the majority can do something, the minority cannot intervene.all decisions made by majority of the company, no member can take any legal action against the company if majority do not made decisions. Where the majority does not wish the company to sue, the court will not generally permit the minority to sue on its behalf or interfere in the internal management of the company.
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