Constraints on Discretion: Part 2—Shareholders

Abstract

This chapter distinguishes between the constraints imposed on the majority or controlling shareholder in the context of business operations that affect the minority detrimentally but do not result in a change in ownership of the business, and in sale of control transactions, such as a merger, sale of all or almost all of the company’s assets, or a takeover. In both cases, agency problems arise between majority and minority shareholders, but legal systems provide for distinct solutions that reflect the different economic importance of the two types of transactions and the fact that minority shareholders are particularly vulnerable to collective action problems when control of the company changes hands.