Foss v Harbottle (1843) 2 Hare 461, 67 ER 189 is a landmark English company law case that established the principle of majority rule and the proper plaintiff rule in company decision-making and the concept of shareholder primacy.
In this case, two minority shareholders brought an action against the directors of a company, alleging that they had committed fraud and mismanagement. The court held that the shareholders did not have the standing to bring the claim, as the alleged wrongs were committed against the company and not the individual shareholders. The court ruled that the only proper claimant in this case was the company itself, and the decision to take legal action against the directors could only be made by the majority of the shareholders.
The significance of this case is that it established the principle of majority rule in company decision-making and the concept of shareholder primacy. It also highlighted the importance of the separate legal personality of a company, which means that the company is a separate legal entity from its shareholders and can sue or be sued in its own right. The case also recognised the duty of directors to act in the best interests of the company, rather than individual shareholders.
You can learn more about this topic with our Company Law notes.