Minority gets major powers in new Compaies Act

Minority shareholders can block related-party deals.

The new Companies Act rules have given a lot of powers to minority shareholders, but the one creating ripples in the corporate sector is that promoters, who are majority shareholders, cannot vote in special resolutions in cases of related-party transactions.

The new rules under Section 188 say any related-party transaction that is not done in the ordinary course of business and is not at an arm’s length will need approval of minority shareholders by way of a special resolution. But, shareholders who are related or interested parties in the transaction will not be able to vote in resolutions relating to payment of brand fees or management fees to majority shareholders.