Protecting Minority Investors

Protecting Minority Investors

Below is a detailed summary of the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 189 economies. The most recent round of data collection was completed in June 2014.

 

 

Extent of disclosure index (0-10)

 

 

Score

 

Score Description

 

Which corporate body can provide legally sufficient approval for the Buyer-Seller transaction? (0-3)

 

 

2

 

Board of directors excluding interested members

 

Is disclosure by the interested director to the board of directors required? (0-2)

 

 

1

 

Existence of a conflict without any specifics

 

Is disclosure of the transaction in published periodic filings (annual reports) required? (0-2)

 

 

2

 

Disclosure on the transaction and on the conflict of interest
 

Is immediate disclosure of the transaction to the public and/or shareholders required? (0-2)

 

 

2

 

Disclosure on the transaction and on the conflict of interest
 

Must an external body review the terms of the transaction before it takes place? (0-1)

 

 

0

 

No

Total score                             7.0

 

 

 

Extent of director liability index

 

 

score

 

Score Description

 

Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0-1)

 

 

1

 

Yes

 

Can shareholders hold the interested director liable for the damage caused by the transaction to the company? (0-2)

 

 

1

 

Liable if negligent

 

Can shareholders hold members of the approving body liable for the damage cause by the transaction to the company? (0-2)

 

 

1

 

Liable if negligent

 

Must the interested director pay damages for the harm caused to the company upon a successful claim by a shareholder plaintiff? (0-1)

 

 

1

 

Yes

 

Must the interested director repay profits made from the transaction upon a successful claim by a shareholder plaintiff? (0-1)

 

 

0

 

No

 

Can both fines and imprisonment be applied against the interested indrector? (0-1)

 

 

0

 

No

 

Can a court void the transaction upon a successful claim by a shareholder plaintiff? (0-2)

 

 

0

 

Only in case of fraud or bad faith

Total score4

 

 

 

Ease of shareholder suits index

 

 

Score

 

Score Description

 

Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? (0-1)

 

 

0

 

No

 

Can the plaintiff obtain any documents from the defendant and witnesses during trial? (0-3)

 

 

0

 

No

 

Can the plaintiff request categories of documents from the defendant without identifying specific ones? (0-1)

 

 

0

 

No

 

Can the plaintiff directly question the defendant and witnesses during trial? (0-2)

 

 

0

 

No

 

Is the level of proof required for civil suits lower than that of criminal cases? (0-1)

 

 

0

 

No

 

Can shareholder plaintiffs recover their legal expenses from the company? (0-2)

 

 

1

 

Yes if successful

Total score1

 

 

Extent of shareholder rights index (0-10.5)

 

 

score

 

Score Descriotion

 

Can shareholders amend company bylaws or statutes with a simple majority?

 

 

0

 

No

 

Can shareholders owning 10% of the company’s share capital call for an extraordinary meeting of shareholders?

 

 

0

 

No

 

Can shareholders remove members of the board of directors before the end of their term.

 

 

1.5

 

Yes

 

Must a company obtain its shareholders’ approval every time it issues new shares?

 

 

1.5

 

Yes

 

Are shareholders automatically granted subscription rights on new shares?

 

 

1.5

 

Yes

 

Must shareholders approve the election and dismissal of the external auditor?

 

 

1.5

 

Yes

 

Can shareholders freely trade shares prior to a major corporate action or meeting of shareholders?

 

 0

 

No

Total score6

 

 

Strength of governance structure index (0-10.5)

 

 

score

 

Score Description

 

Is the CEO barred from also serving as chair of the board of directors?

 

 

0

 

No

 

Must the board of directors include independent board members?

 

 

0

 

No

 

Must a company have a separate audit committee?

 

 

    1

 

Yes for listed companies

 

Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected shares?

 

 

1.5

 

Yes

 

Must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of a company?

 

 

0

 

No

 

Is cross-shareholding between 2 independent companies limited to 10% of outstanding shares?

 

 

0

 

No

 

Is a subsidiary barred from acquiring shares issued by its parent company?

 

 

0

 

No

Total score2.5

 

 

Extent of corporate transparency index (0-9)

 

 

Score

 

Score Description

 

Must ownership stakes representing 10% be disclosed?

 

 

1

 

Yes for listed companies

 

Must information about board members’ other directorships as well as basic information on their primary employment be disclosed?

 

 

0

 

No

 

Must the compensation of individual managers be disclosed?

 

 

0

 

No

 

Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties and other factors influencing the reporting?

 

 

1

 

Yes for listed companies

 

Must annual financial statements be audited by an external auditor?

 

 

1.5

 

Yes

 

Must audit reports be disclosed to the public?

 

 

1

 

Yes for listed companies

Total score4.5

 

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