Owning a minority shareholding in a Nigerian company does not mean that a shareholder has no legal protection.
Although majority shareholders generally have greater voting power, Nigerian company law recognises that majority control cannot be used without legal limits to unfairly prejudice minority shareholders.
The Companies and Allied Matters Act 2020 (CAMA 2020) provides various protections and remedies for members of a company, including remedies against oppressive, unfairly prejudicial or discriminatory conduct.
Minority shareholders can therefore challenge certain decisions and conduct that unlawfully interfere with their rights or unfairly prejudice their interests.
This article explains the principal minority shareholder rights in Nigeria, the situations in which those rights can be enforced and the remedies available under Nigerian company law.
Who Is a Minority Shareholder?
A minority shareholder is generally a shareholder who does not possess sufficient voting power to control the company’s decisions.
For example, if four shareholders collectively own 80% of a company’s shares and another shareholder owns 20%, the 20% shareholder is a minority shareholder.
Being a minority shareholder does not mean that the shareholder has fewer legal rights simply because the shareholder has fewer shares.
The shareholder retains the rights attached to the shares held, subject to the company’s constitution and applicable law.
What Rights Does a Minority Shareholder Have in Nigeria?
Depending on the circumstances, minority shareholders have rights relating to:
- voting;
- participation in general meetings;
- receiving notices of meetings;
- receiving dividends when lawfully declared;
- receiving relevant corporate information;
- inspection of certain company records;
- challenging unlawful corporate acts;
- protection against oppressive conduct;
- protection against unfairly prejudicial conduct;
- bringing derivative proceedings in appropriate circumstances;
- seeking relief where their membership rights have been infringed; and
- receiving their lawful entitlement when the company is wound up.
The precise scope of each right depends on CAMA, the company’s articles and the circumstances of the particular company.
Does a Minority Shareholder Have Voting Rights?
Yes.
A minority shareholder is entitled to exercise the voting rights attached to the shares held, subject to the company’s constitution and the applicable provisions of CAMA.
For example, a shareholder holding 20% of the ordinary shares does not lose the right to vote merely because another shareholder owns 80%.
The majority shareholder will ordinarily have greater voting power, but the minority shareholder’s voting rights remain legally recognised.
Can Majority Shareholders Do Whatever They Want?
No.
Majority voting power is not an unlimited licence to act unlawfully or oppressively.
The majority can ordinarily determine matters according to the voting structure of the company, but decisions must still comply with:
- CAMA 2020;
- the company’s memorandum and articles;
- applicable resolutions and procedures;
- directors’ duties; and
- other relevant laws.
Where majority control is exercised in a manner that unfairly prejudices minority shareholders, the minority can seek appropriate legal relief.
Can a Minority Shareholder Challenge an Unlawful Company Decision?
Yes.
A minority shareholder can challenge an unlawful decision where the shareholder has a legally recognised basis for doing so.
The appropriate remedy depends on the nature of the decision.
For example, a shareholder can challenge a corporate act that violates the shareholder’s personal rights or seek appropriate relief where the company’s affairs are being conducted in an oppressive or unfairly prejudicial manner.
A shareholder should, however, distinguish between an unlawful decision and a decision that the shareholder simply considers commercially unwise.
Courts do not ordinarily substitute their commercial judgment for that of properly constituted corporate organs.
What Is Minority Shareholder Oppression?
Minority shareholder oppression occurs where the affairs of a company are conducted in a manner that unfairly subjects a member or members to oppressive treatment.
CAMA 2020 provides a statutory remedy where the company’s affairs are conducted in a manner that is oppressive, unfairly prejudicial or unfairly discriminatory against a member or members.
This protection is particularly important where majority shareholders use their control of the company to unfairly disadvantage minority shareholders.
What Is Unfairly Prejudicial Conduct?
Conduct can be unfairly prejudicial where it causes unfair harm to the interests of a shareholder in circumstances recognised by law.
Examples can include:
- exclusion from management contrary to established arrangements;
- diversion of company benefits to majority shareholders;
- manipulation of shareholding;
- withholding information improperly;
- using corporate powers to unfairly dilute a minority interest;
- treating similarly situated shareholders differently without lawful justification; or
- using control of the company to advance the interests of the majority at the expense of the minority.
Whether particular conduct is oppressive or unfairly prejudicial depends on the facts.
Can Majority Shareholders Dilute a Minority Shareholder’s Shares?
A company can lawfully issue additional shares in accordance with CAMA and its constitution.
However, the power to issue shares must not be abused for an improper purpose.
A purported share issue designed principally to destroy a minority shareholder’s voting power or unfairly alter control can be challenged where the facts establish a legal basis for doing so.
A minority shareholder who suspects an improper dilution should promptly obtain the relevant corporate records and examine the circumstances surrounding the share issue.
Can a Minority Shareholder Challenge a Transfer of Shares?
A shareholder can challenge a share transfer where there is a legal basis for doing so.
The company’s articles and CAMA can regulate transfers, particularly in private companies.
A minority shareholder should examine:
- the articles of association;
- the share transfer documentation;
- board resolutions;
- relevant shareholder agreements;
- pre-emption provisions;
- the company’s register of members; and
- the circumstances surrounding the transfer.
The mere fact that a shareholder dislikes a transfer does not make it unlawful.
Does a Minority Shareholder Have a Right to Dividends?
A shareholder does not acquire an automatic right to a dividend merely because the company has made a profit.
Dividends must be lawfully declared in accordance with CAMA and the company’s constitution.
Once a dividend is properly declared and becomes payable, the shareholder’s entitlement becomes enforceable in accordance with the applicable law.
A majority shareholder cannot simply divert a lawfully declared dividend belonging to a minority shareholder.
Can Majority Shareholders Refuse to Pay Minority Shareholders Dividends?
The answer depends on whether a dividend has actually been declared and what the company’s financial and corporate circumstances are.
A company is not required to distribute every profit it makes as dividends.
However, where dividends have been properly declared, shareholders entitled to them have enforceable rights.
If the majority is manipulating the company’s affairs to deprive minority shareholders of benefits while improperly extracting value for themselves, the circumstances can potentially support an oppression or other shareholder remedy.
Does a Minority Shareholder Have a Right to Attend General Meetings?
Yes, where the shareholder is entitled to receive notice and participate in the relevant meeting.
A shareholder should receive the notices required by law and the company’s constitution.
The company should not improperly exclude a member from meetings or deliberately deprive the shareholder of the opportunity to exercise membership rights.
Failure to properly notify a shareholder can affect the validity of corporate proceedings in appropriate circumstances.
Can a Minority Shareholder Demand Company Information?
Minority shareholders have statutory rights concerning certain corporate information and records.
However, being a shareholder does not mean that the shareholder is automatically entitled to every document in the company’s possession.
The specific right depends on the nature of the document and the relevant provisions of CAMA.
Where a shareholder requires information to investigate suspected wrongdoing, the appropriate statutory or procedural mechanism should be considered.
Can a Minority Shareholder Inspect Company Records?
CAMA provides members with rights concerning certain company records.
The precise documents available for inspection and the procedure for accessing them depend on the relevant statutory provisions and the nature of the company.
A shareholder seeking information should identify the specific records required rather than making an unrestricted demand for all company documents.
Can a Minority Shareholder Sue the Company?
Yes.
A shareholder can sue the company where the shareholder’s personal legal rights have been violated.
For example, a shareholder can have a personal claim where the company unlawfully interferes with rights attached to the shareholder’s shares.
However, a shareholder should not automatically sue the company personally for every wrong committed against the company.
Where the wrong belongs to the company, a derivative action can be appropriate.
Can a Minority Shareholder Sue a Director?
Yes, where the facts establish a legally recognised basis.
The shareholder can have a personal claim where the director has infringed a right belonging to the shareholder.
Where the director has committed a wrong against the company, the shareholder can consider the derivative-action procedure under CAMA where the statutory requirements are satisfied.
For a detailed explanation, see When Can a Shareholder Sue a Company Director in Nigeria?
What Is a Derivative Action?
A derivative action allows a qualified person to pursue proceedings on behalf of a company in circumstances prescribed by CAMA.
This is particularly important where directors have allegedly wronged the company but those controlling the company refuse to take action.
For example, if directors divert company property to themselves, the company ordinarily has the cause of action.
If the board refuses to sue because the directors themselves are involved, a qualified shareholder can seek the court’s permission to pursue a derivative action.
The purpose is to protect the company’s interests, not simply to provide the shareholder with a personal damages claim.
Can a Minority Shareholder Bring an Oppression Petition?
Yes.
CAMA provides a specific statutory mechanism through which a member can seek relief where the affairs of the company are conducted in an oppressive, unfairly prejudicial or unfairly discriminatory manner.
This is one of the most important remedies available to minority shareholders.
The shareholder must establish the factual circumstances necessary to invoke the statutory protection.
A disagreement with a legitimate business decision does not, by itself, amount to oppression.
What Orders Can a Court Make to Protect a Minority Shareholder?
Where the statutory requirements are established, the court has broad remedial powers.
Depending on the circumstances, relief can include orders:
- regulating the future conduct of the company’s affairs;
- restraining particular acts;
- requiring particular acts to be done;
- directing the purchase of shares;
- regulating the company’s affairs;
- providing other appropriate relief to resolve the prejudice complained of.
The precise order depends on the nature of the oppression or unfair prejudice established before the court.
Can a Minority Shareholder Force the Majority to Buy Their Shares?
In an appropriate oppression case, a court can make an order requiring one shareholder or the company to purchase the shares of another shareholder.
This can provide an exit mechanism where the relationship between shareholders has broken down and continued participation in the company has become impracticable or unfair.
However, a shareholder cannot demand a compulsory buyout simply because the shareholder no longer wants to remain invested.
There must be a proper legal basis for the remedy.
Can a Minority Shareholder Stop a Company From Selling Its Assets?
Not merely because the shareholder disagrees with the sale.
The board ordinarily has powers to manage the company’s business subject to CAMA, the company’s constitution and matters reserved for shareholders.
However, where the proposed transaction is unlawful, fraudulent, oppressive or otherwise breaches a legal obligation, a minority shareholder can seek appropriate relief.
The shareholder must establish the legal basis for intervention.
Can a Minority Shareholder Challenge Fraud by the Majority?
Yes.
Fraudulent conduct by majority shareholders or directors can give rise to legal remedies.
The appropriate action depends on whether the fraud affects:
- the company;
- the minority shareholder personally; or
- both.
Where company assets have been fraudulently diverted, a derivative action can be relevant.
Where the shareholder’s personal rights have been directly affected, a personal action can be appropriate.
Where the conduct is oppressive or unfairly prejudicial, the shareholder can also consider the relevant statutory remedies.
What Happens If the Majority Shareholders Exclude a Minority Shareholder From Management?
The answer depends on the company’s structure and the circumstances in which the shareholder became involved in management.
A shareholder does not automatically have a right to participate in management merely because the shareholder owns shares.
Management is ordinarily vested in the directors.
However, where there was an established arrangement or legitimate expectation that a shareholder would participate in management, and the majority deliberately excludes the shareholder in circumstances amounting to oppression or unfair prejudice, a statutory remedy can arise.
The facts must therefore be carefully examined.
Can a Minority Shareholder Challenge Excessive Directors’ Remuneration?
Potentially, where there is a legal basis for doing so.
Directors’ remuneration must comply with the applicable corporate governance framework and the company’s constitution.
Where directors use their control to extract excessive or improper benefits from the company, particularly at the expense of minority shareholders, the transaction can be challenged where the legal requirements are established.
The issue is not simply whether the remuneration is high. The circumstances in which it was approved and whether the directors acted within their powers are important.
Can a Minority Shareholder Challenge Related-Party Transactions?
Yes, where the transaction involves an undisclosed or improperly managed conflict of interest or otherwise violates applicable law.
For example, a director who causes the company to purchase property from a business personally owned by the director should properly disclose the relevant interest.
A minority shareholder who suspects that company assets are being transferred to directors or related parties on improper terms should investigate the transaction and consider the appropriate corporate remedy.
What If the Company Is Controlled by Family Members?
Family ownership does not remove the application of company law.
A family-owned company remains subject to CAMA and its constitutional documents.
Minority shareholders in family-owned companies can therefore rely on applicable statutory rights.
This becomes particularly important where informal arrangements exist concerning:
- management;
- dividends;
- share transfers;
- succession;
- participation in the business; or
- ownership of company assets.
Such arrangements should be properly documented wherever possible.
What Evidence Should a Minority Shareholder Keep?
A minority shareholder involved in a dispute should preserve:
- share certificates;
- evidence of shareholding;
- company resolutions;
- notices of meetings;
- minutes;
- financial statements;
- dividend records;
- correspondence;
- emails;
- shareholder agreements;
- corporate filings;
- evidence of transactions involving directors or majority shareholders; and
- other documents relevant to the dispute.
Evidence is particularly important where the shareholder alleges oppression, fraud or improper diversion of company assets.
What Should a Minority Shareholder Do Before Going to Court?
A shareholder should first identify the exact legal wrong.
The shareholder should ask:
- What right has been violated?
- Is the wrong personal to me or is it a wrong against the company?
- Is there evidence supporting the allegation?
- Does CAMA provide a specific remedy?
- Is a derivative action required?
- Is the conduct oppressive or unfairly prejudicial?
- What relief do I actually want?
- Is there a shareholder agreement or constitutional provision governing the dispute?
These questions help determine the appropriate cause of action.
Can a Minority Shareholder Resolve the Dispute Without Litigation?
Yes.
Litigation is not always the first or most commercially sensible option.
Depending on the circumstances, parties can consider:
- negotiation;
- mediation;
- shareholder meetings;
- corporate restructuring;
- buyout arrangements;
- amendment of governance arrangements; or
- other negotiated solutions.
However, where negotiations fail and the shareholder’s rights continue to be infringed, legal proceedings can become necessary.
Practical Example
Assume ABC Limited has three shareholders:
- A owns 70%;
- B owns 20%; and
- C owns 10%.
A also controls the board.
The directors cause ABC Limited to enter into a contract with another company owned by A on highly disadvantageous terms without properly disclosing A’s interest.
B and C suspect that company assets are being diverted for A’s personal benefit.
The fact that A owns 70% does not automatically make the conduct lawful.
The company itself can have a claim concerning the transaction.
B and C can consider the appropriate corporate remedies, including a derivative action where the statutory requirements are satisfied.
If A’s conduct also amounts to oppressive or unfairly prejudicial treatment of B and C, they can consider the statutory remedies available to members.
The appropriate relief depends on the evidence and the particular circumstances.
Key Rights of Minority Shareholders
A minority shareholder should understand these basic principles:
- Minority status does not eliminate legal rights.
- A shareholder has the voting rights attached to the shares held.
- Majority control is subject to the law.
- A shareholder can challenge unlawful corporate conduct.
- CAMA provides protection against oppressive and unfairly prejudicial conduct.
- A derivative action can be used to protect the company’s interests where the statutory requirements are met.
- A shareholder can bring a personal action where personal rights are infringed.
- Shareholders can seek appropriate judicial remedies where the statutory requirements are established.
- Proper corporate records are important when investigating wrongdoing.
- Legal advice should be obtained before commencing proceedings.
Conclusion
Minority shareholders in Nigeria are not without legal protection.
Although majority shareholders generally possess greater voting power, they cannot lawfully use that power to disregard the rights of minority shareholders or conduct the company’s affairs in a manner prohibited by law.
CAMA 2020 provides several mechanisms for protecting members, including personal and derivative actions and remedies against oppressive, unfairly prejudicial and discriminatory conduct.
The most important distinction is between a personal wrong suffered by the shareholder and a wrong suffered by the company. That distinction determines whether the shareholder should bring a personal action, pursue a derivative action or invoke another statutory remedy.
Minority shareholders should also resist the assumption that going to court is the only option. In appropriate cases, negotiation, mediation, a share buyout or restructuring can provide a more commercially effective solution.
If you are a minority shareholder who is being excluded from the affairs of a company, denied your lawful rights, subjected to oppressive conduct or concerned about the misuse of company assets, Lexforte Attorneys can review the circumstances and advise you on the appropriate remedy. Contact Lexforte Attorneys for professional assistance with minority shareholder disputes, derivative actions and corporate litigation in Nigeria.