Majority rule and minority shareholder protection in joint stock companies in England and Iran

Principally, joint stock companies are governed by the principle of majority rule, which means that while they are formed and continue to work through participation of every shareholder, only those who hold a majority of voting shares can make decisions in companies. The principle relies on contract and is often supported by company law. In the main, it is advantageous to companies, the Judiciary and the economy. It facilitates collective action, allows management to focus on the daily running of the company business and encourages corporate financing, which is decisively important for corporations. It also saves, by curbing minority actions, the courts’ time and the public budget. In one sense, however, it can also be dangerous to the rights and interests of minority shareholders. Using the majority rule, majority shareholders may fix for themselves private benefits or adopt policies which are poor and consequently harmful to companies. Such danger could discourage likely investors from investing their capital in companies and might undermine one of the main purposes of the corporation as an institution introduced by law and business practice to solve problems encountered in raising substantial amounts of capital. This research seeks to study in the light of English and Iranian company laws difficulties deriving from application of the majority rule for minority shareholders and possible ways and mechanisms which can be used to sensibly curb the occurrence of such difficulties. To this objective, it identifies four factors which can explain how and why the rule is liable to abuse by majority shareholders and examines the mechanisms provided by company laws of England and Iran which attempt to strike a balance between the rule of majority and interests of minority shareholders