A Comparative Study of the Scope of Majority Rule in Joint Stock Companies: The Case of England and Iran

Majority rule has been a fundamental principle of corporate governance in the corporations and corporation laws of most countries including England and Iran. According to it, shareholders who hold the majority of the corporate shares will take collective decisions in joint stock companies and once taken such decisions will bind the company and every company member even those who were in the minority cam, disagreeing with the majority. Although principally shareholders are required to submit to resolutions adopted by a simple majority vote, this, however, does not follow that majority rule applies in every circumstance and on every issue. There are limitations in law that sensibly narrows the scope of applicability of the rule. In England, company law has put certain limitations on the scope of majority rule in order to address the possibility of abuse of rights by the majority. Such limitations can generally be classified into two categories. One concerns those imposed by the law, as every person, real or legal, is required to conform to the law. The other relates to those arising from the constitution, as it requires contracting parties to adhere their contract on the freedom of intention principle. In Iran, on the other hand, the company law has confirmed the majority rule, failing to determine its scope. This has caused the rule to be liable to abuse by the majority shareholders in Iranian Joint stock companies. By examining the scope of the majority rule in English companies, this paper seeks on the one hand to portray the field of application of the majority rule as between majority and minority shareholders in Iranian Joint stock companies and on the other hand to draw certain conclusions that can be extended in order to improve the Iranian company law on this matter.