Let us start with the definition of minority shareholders. Shareholders (individuals or entities) who own less than 50 per cent of the issued shares of a company and who do not have voting control of the total shares in issue are deemed minority shareholders.
Shareholders are the owners of the company. Shareholders do not control the decisions of directors.
Once directors are elected, they are legally required to act on behalf of the company and all of the shareholders. In many cases, the board delegates its management powers to officers who are legally the agents of the company.
Minority shareholders have certain rights under the Companies Act, Chapter 308 of Barbados that are available to all shareholders. Some of these are the right to attend and vote at annual shareholder meetings; the right to call special shareholders meetings; the right to amend the company’s by-laws; the right to amend the company’s article of incorporation; the right to vote on the election of directors; the right to vote on major corporate events, such as mergers, liquidation or the sale of the company’s assets; the right to receive dividends declared and paid by the company; the right to appoint auditors of the company; and the right to inspect books and records and the list of shareholders.
It is generally accepted in practice that it is the majority shareholders who exercise control over the company. This stems from common law practice that says the majority should rule over the minority.
If one follows the behaviour of the boards of directors in most of the public companies listed on the Barbados Stock Exchange, it would suggest that most of the rights enumerated above are more illusory than real.
Minority shareholders also have to contend with directors who too often appear to have much more power than the minority shareholders themselves.
Clearly, minority shareholders are unable to exercise these rights because the majority shareholders control the company.
What if the company wanted to have its shareholder meeting outside of Barbados as permitted by its by-laws and the minority shareholders objected on the grounds of their inability to afford the costs involved? And what if the majority decided to sell, amalgamate or merge the company and this was opposed by the minority?
Whereas the behaviour of the majority can be deemed in some instances to be oppressive to the minority, it can be very difficult to prove this in a court of law.
What measures therefore can be taken to provide additional protection to minority shareholders in Barbados?
Here are some recommendations: Certain important changes or decisions should require a supermajority shareholder vote; the majority shareholders should be required to have a fiduciary duty to the minority shareholders; minority shareholder litigation should make it easier for the minority to institute legal proceedings against the majority; there should be comprehensive shareholder agreement to address issues such as corporate governance, voting for significant transactions, limitations on board authority and succession in the case of death or disability of key shareholders; consideration should be given to the appointment of a company ombudsman to whom minority shareholders can take their grievances.
Douglas Skeete is interim president of the Barbados Association of Corporate Shareholders
