Intervening minority shareholders may pose a threat to the control of the management over corporate decisions, argues this paper.
Authors
Sakshat Bansal, Associate Professor, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.
Ananya Vajpeyi, Law student, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
This paper attempts to establish that the unprecedented instance of a rise in shareholder activism in India may lead to unprecedented consequences as well. It argues that intervening minority shareholders may pose a threat to the control of the management over corporate decisions.
As a reaction to this threat, the directors may adopt strategies that, in the garb of benefitting the company, help them in retaining control. This paper points out two strategies that might be adopted by them.
Preferential allotment, which disarms the intervening shareholders at the very beginning by diluting their stakes and voting powers. The other is appeasement of the shareholder body at large by increasing leverage, making risky investments and decreasing cash holdings which in turn have negative credit market reactions.
This paper aims to act as an invitation for lawmakers and scholars to deliberate upon a problem that can be anticipated for the near future.
Published in: ILI Law Review
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