What is the rule in Foss v. Harbottle?
Asked by: Jenifer Gulgowski Sr. | Last update: September 18, 2025Score: 4.7/5 (71 votes)
The Rule of Foss v. Harbottle has established an elementary principle in the field of company law: the proper plaintiff for a wrong done to a company, is the company itself.
What is the rule in Foss and Harbottle?
The law relating to the ability of a member to bring proceedings on behalf of the company is not written down in statute. The general principle – commonly known as the rule in Foss v Harbottle – is that it is for the company itself to bring proceedings where a wrong has been done to the company.
What is the majority rule in Foss v Harbottle?
Firstly, the "proper plaintiff rule" is that a wrong done to the company may be vindicated by the company alone. Secondly, the "majority rule principle" states that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, then the court will not interfere (legal term).
What is the exception to the rule in Foss v Harbottle?
It was held that the exception to the rule in Foss v Harbottle enabling a minority shareholder to bring an action against a company for fraud, where no other remedy was available, should include cases where even though there was no fraud expressly alleged, there was a breach of duty by the directors and majority ...
What is the justification and for the rule in Foss v. Harbottle?
It can be argued that the justification for the rule in Foss v. Harbottle is noble as it prevents multiplicity of actions and allows the company to focus on its business without distractions from legal suits. 7It also help entrench corporate democracy where by the rule of the majority is supreme.
The Foss v Harbottle case law Explained| CA/CS/CMA Final | Majority & Minorities Rights
What is the rule of justification?
Justification is a type of defense that exempts the defendant from liability because the defendant's actions were justified, or not wrong.
Does Foss v. Harbottle separate legal personality?
In Foss v Harbottle, the Court upheld the principle of separate legal personality and held that if the company is involved in legal proceedings, it must be initiated in the name of the company, and not in the name of the shareholders or directors as it is the company, which exists as its own legal person, itself being ...
What is the principle of irregularity in Foss v Harbottle?
It is a general principle of company law that an individual shareholder cannot sue for wrongs done to a company or complain of any internal irregularities. This principle is commonly known as the rule in Foss v Harbottle.
What is the Turquand rule?
The doctrine of indoor management, also known as the Turquand rule is a 150-year old concept, which protects outsiders against the actions done by the company. Any person who enters into a contract with the company shall ensure that the transaction is authorised by the articles and memorandum of the company.
What is the proper claimant rule?
It is a basic rule of Company Law that where a wrong is committed on the company, whether by the Directors or majority Shareholders, the proper Claimant is the company itself.
What is the majority rule?
In social choice theory, the majority rule (MR) is a social choice rule which says that, when comparing two options (such as bills or candidates), the option preferred by more than half of the voters (a majority) should win. In political philosophy, the majority rule is one of two major competing notions of democracy.
What is oppression and mismanagement?
Oppression is specifically dealt in the Section 241 of The Companies Act, 2013. It covers continuing acts and the acts which have been concluded. Moreover, 'mismanagement' indicates the working of a company in a manner which is prejudicial to the public interest or the interest of a company.
What is the principle of irregularity?
Irregularity Principle
Browne v La Trinidad13, 'A Court of Equity refuses to interfere where an irregularity has been permitted if it is within the power of the persons who have permitted it at once to correct it by calling a fresh meeting and dealing with the matter with all deal formalities.
What was the majority rule in Foss v. Harbottle?
The Court held that the action could not be brought by the minority shareholders. The wrong done to the company was one which could be ratified by the majority of members. The company was the proper plaintiff for the wrong done to the company, and the company can act only through its shareholders.
What was the conclusion of Foss v. Harbottle?
Conclusion. The Court in Foss vs Harbottle held that only the company or a representative action can take legal steps if a company suffers losses due to negligence or fraud. It upheld the rule that a company is a separate legal entity so individual shareholders cannot sue on its behalf.
What is the indoor management rule?
The Indoor Management rule basically says that 3rd parties dealing with someone in a company can assume that the company has followed its own internal processes. The Rule is found in the Alberta Business Corporations Act and the Canada Business Corporations Act.
What is the rule laid down in Royal British Bank v Turquand?
According to the Turquand rule, each outsider contracting with a company in good faith is entitled to assume that the internal requirements and procedures have been complied with. The company will consequently be bound by the contract even if the internal requirements and procedures have not been complied with.
What is the minimum subscription?
Minimum subscription is the least amount of money a company must collect when issuing shares to the public. This rule applies to all companies raising funds from the public.
What is the difference between MoA and AOA?
The MOA outlines a company's objectives, scope of operations, and its relationship with shareholders, while the AOA defines the internal rules and regulations governing the management and operation of the company. Crafting these documents requires legal expertise and incurs expenses.
What is the practical law of Foss v Harbottle?
In general, derivative claims are barred by the two limbs of the rule in Foss v Harbottle (1843) 2 Hare 461, which hold that: The only person with standing to initiate litigation to redress a wrong done to the company is the company itself.
Why is the rule in Foss v. Harbottle such an important one?
The Rule of Foss v. Harbottle has established an elementary principle in the field of company law: the proper plaintiff for a wrong done to a company, is the company itself.
What is the majority rule for shareholders?
Majority shareholders, on the other hand, own more than 50% of the shares and thus have the power to make key decisions within the company. This power balance can sometimes create tensions and conflicts within the organisation. This is where a shareholders' agreement comes into play.
What is the separate legal personality rule?
Once company has been incorporated or registered, it obtains a legal entity separate separate from the owners and the people running the company (i.e. directors). This means the company becomes a legal person that has rights and obligations, for example it can own property and assets, sue and be sued in its own right.
What is the majority rule in company law?
The principle of rule of majority is applicable to the management of the affairs of companies. The members of the company pass resolution by simple majority and in certain cases by three fourth majority. Once a required resolution is passed it becomes binding on all the members.
What are derivative actions?
A derivative action is a type of lawsuit in which the corporation asserts a wrong against the corporation and seeks damages . Derivative actions represent two lawsuits in one: (1) the failure of the board of directors to sue on an existing corporate claim and (2) the existing claim.