Foss v Harbottle (1843) 67 E.R. 189

Court: Court of Chancery

Facts: Two shareholders in a real estate company brought a claim against the directors for breach of their duties by misapplying the company's capital.

Issue: Can individual shareholders bring an action on behalf of the company for wrongs done to it by directors, or is this solely the company's right?

Held: The shareholders were not entitled to bring the claim. The Court held that only the company itself could sue for wrongs committed against it.

Key Judicial Statement: Wigram V-C highlighted that if a majority of shareholders could lawfully ratify the alleged breach, then the minority shareholders cannot maintain the suit on behalf of the company. He explained that the governing body of shareholders may bind even the reluctant minority through lawful resolutions.

💡Leveluplaw: The rule in Foss v Harbottle prevents individual shareholders from suing for wrongs done to the company, as the company is a separate legal entity. The only way minority shareholders can sue is if there are common law or statutory exceptions, such as cases of fraud or misconduct.