Current Enforcement Mechanisms for Shareholder Protection in Pakistan: Need for Reforms in Shape of Derivative Action

This article analyses the corporate structure of Pakistan with reference to shareholder protection mechanisms. Discussing the shortcomings of current enforcement mechanisms, this article would focus on need of reforms ensuring better protection of minority shareholders when a company wronged is under control of errant directors or majority shareholders. It’s a common practice that directors having control over internal management of the company or the shareholders owning higher percentage of capital, i.e. higher voting rights tend to ignore interests of shareholders as well as company and abuse their powers for satisfying their personal interests. As a result of this abusive approach, both company and minority shareholders suffer at the hands of those in controlling positions. This approach also causes loss to country’s economy. Though different remedies are in place for providing protection but inadequacy of these remedies worsens the situation. Therefore, an effective remedy in shape of derivative action to provide inclusive protection to shareholders is a must. That being said, provisions of derivative action in English company law would also be reviewed to see how world’s most advanced jurisdiction dealt with issue of minority protection.