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Understanding the Rule in Foss v Harbottle and Its Implications
Definition & Meaning
The rule in Foss v Harbottle is a fundamental principle in corporate law that states shareholders cannot sue for wrongs done to a corporation. This rule originated from the 1843 case of Foss v Harbottle, where it was established that any grievances related to the company must be addressed by the corporation itself, rather than by individual shareholders. The rule applies particularly to internal issues within the company, provided that these issues can be approved or sanctioned by the majority of shareholders.
Table of content
Legal Use & context
This rule is primarily used in corporate law, particularly in cases involving shareholder disputes and internal company governance. It emphasizes the principle that the company is a separate legal entity, and only the company can take action against wrongdoers. However, there are exceptions, such as the derivative action, which allows minority shareholders to bring claims on behalf of the company when the majority is in control and is the wrongdoer. Users can find relevant legal forms and templates through US Legal Forms to assist in these matters.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
(hypothetical example) A minority shareholder discovers that the majority shareholders are mismanaging company funds for personal gain. Under the rule in Foss v Harbottle, the minority shareholder cannot sue the majority directly. However, they may file a derivative action to seek redress on behalf of the corporation.
State-by-state differences
Examples of state differences (not exhaustive):
State
Variation
Delaware
Derivative actions are more commonly accepted and have specific procedural rules.
California
California has specific statutes that outline the rights of minority shareholders in derivative actions.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Difference
Derivative Action
A lawsuit brought by a shareholder on behalf of the corporation.
Allows minority shareholders to act when the majority is wrongdoers.
Shareholder Suit
A legal action taken by shareholders against the corporation or its directors.
Typically involves direct claims, which are not allowed under Foss v Harbottle.
Common misunderstandings
What to do if this term applies to you
If you believe the rule in Foss v Harbottle applies to your situation, consider the following steps:
Assess whether you are a minority shareholder and if the majority is involved in wrongdoing.
Explore the option of filing a derivative action to represent the company's interests.
Consult with a legal professional for tailored advice and to understand your rights.
Utilize US Legal Forms to find relevant templates and forms that can assist you.
Find the legal form that fits your case
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