However, in many jurisdictions the members of the company are permitted to ratify transactions
which would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions
that this principle should be capable of being abrogated in the company's constitution.
Members of a company generally have rights against each other and against the company, as
framed under the company's constitution. In relation to the exercise of their rights, minority
shareholders usually have to accept that, because of the limits of their voting rights, they cannot
direct the overall control of the company and must accept the will of the majority (often
expressed as majority rule). However, majority rule can be iniquitous, particularly where there is
one controlling shareholder. Accordingly, a number of exceptions have developed in law in
relation to the general principle of majority rule.
Where the majority shareholder(s) are exercising their votes to perpetrate a fraud on the
minority, the courts may permit the minority to sue
members always retain the right to sue if the majority acts to invade their personal rights, e.g.
where the company's affairs are not conducted in accordance with the company's constitution
(this position has been debated because the extent of a personal right is not set in
law).Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in
in many jurisdictions it is possible for minority shareholders to take
a representative or derivative action in the name of the company, where the company is
controlled by the alleged wrongdoers
Companies generally raise capital for their business ventures either by debt or equity. Capital
raised by way of equity is usually raised by issued shares (sometimes called "stock" (not to be
confused with stock-in-trade)) or warrants.
A share is an item of property, and can be sold or transferred. Holding a share makes the holder a
member of the company, and entitles them to enforce the provisions of the company's
constitution against the company and against other members. Shares also normally have a
nominal or par value, which is the limit of the shareholder's liability to contribute to the debts of
the company on an insolvent liquidation.
Shares usually confer a number of rights on the holder. These will normally include:
rights to dividends (or payments made by companies to their shareholders) declared by the
rights to any return of capital either upon redemption of the share, or upon the liquidation of
in some countries, shareholders have preemption rights, whereby they have a preferential
right to participate in future share issues by the company
Many companies have different classes of shares, offering different rights to the shareholders.
For example, a company might issue both ordinary shares and preference shares, with the two
types having different voting and/or economic rights. For example, a company might provide that preference shareholders shall each receive a cumulative preferred dividend of a certain
amount per annum, but the ordinary shareholders shall receive everything else.
The total number of issued shares in a company is said to represent its capital. Many jurisdictions
regulate the minimum amount of capital which a company may have, although some countries
only prescribe minimum amounts of capital for companies engaging in certain types of business
(e.g. banking, insurance etc.).
Similarly, most jurisdictions regulate the maintenance of capital, and prevent companies
returning funds to shareholders by way of distribution when this might leave the company
financially exposed. In some jurisdictions this extends to prohibiting a company from
providing financial assistance for the purchase of its own shares.
Liquidation is the normal means by which a company's existence is brought to an end. It is also
referred to (either alternatively or concurrently) in some jurisdictions as winding
up or disso