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Literature Review: Legal System in Saudi Arabia

   

Added on  2019-09-20

9 Pages2186 Words360 Views
LITERATURE REVIEWPage | 0Literature ReviewMINORITY SHAREHOLDERS PROTECTION THROUGH DERIVATIVE SUIT

IntroductionThe rights belonging to shareholders varies from country to country and is dependent solely on some factors which includes political and economic structures of the company. It is important to protect the rights of the shareholders, by the using the regulations or by the use of the judicial process or by the maintenance of the corporate governance within the company itself, since this practice of corporate governance ensure the foreign investments where the directors are under obligation to consider the rights of the investors with other clients and employees and obviously the minority shareholders. Minority ShareholdingIt is crucial to have the definition of the minority shareholding before actually deciding what it isin Saudi Arabia. It is obvious that the minority do not possess the control over the firm’s operational activities when it is done through voting. But, when a shareholder has the majority share then they enjoy their influence in operation including decision making. But, to ensure the effectivity of the good corporate governance, it is essential to protect the rights of the minority shareholders. The Saudi legal systemThe legal system in Saudi Arabia, gives the option to the shareholder in minority to place againstthe majority shareholder, the complaint. But, the complaint so made cannot be to the Board of directors based on the fact of assumption about the future occurrence of any unethical or illegal behavior which is likely to happen. So, it is clear that minority shareholder can only complain after the occurrence and not in suspicion of it. The minority shareholder is also restricted to seek

review after the completions of the actions which is on the contrary with the majority shareholder. When there is the situation which report for the abuse of power, then also majority shareholder is in the forefront and they have the right to held the directors liable or accountable for any misconduct on their part. In general circumstances, the Court often take the side of the majority shareholder, so that they do not have to intervene in the internal affairs of the company. Even the majority shareholders incorporate their own terms and conditions in the shareholder agreement, subject to the fulfillment of conditions that the terms and conditions so included is not in conflict with the company’s original vision. So, it is apparently obvious that the legal system in Saudi Arabia do not actually take the side and in so doing do not provide adequate protection in securing the rights and the interests of the minority shareholders. Again, the company law in Saudi Arabia, do not provide the definition of the word share, but the Saudi Arabia Capital Market provides a definition for it and held share to be an investment indicating ownership in the company. The UK Companies Act 2006, also do not provide the definition of share but, precedence as observed in Borland'sTrusteevSteelBrothers&CoLtdisused, where share was defined as the liability and 2ndly the interests and also includes mutual covenants. OECD Principles ofCorporate GovernanceThe OECD set principlesfor countries to develop corporate governance for achieving minimum standards. Fairness, Responsibility, Transparency, Accountability are the major pillars of corporate governance. To achieve the standard of fairness, the shareholder’s rights must be safeguarded by the laws and the regulations. In order to incorporate responsibility, compliance to

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