Protection of Minority Shareholders’ Rights

Minority shareholders are holders of small blocks of shares in a joint-stock company that do not allow them to exert decisive influence over the management of the company. However, despite the limited size of their shareholding, the rights of such shareholders are essential for ensuring fair corporate governance and maintaining trust in the stock market. In Uzbekistan, the protection of minority shareholders’ rights is enshrined in the Law “On Joint-Stock Companies and Protection of Shareholders’ Rights” (new edition, 2014).

Main Rights of Minority Shareholders

According to the law, shareholders—regardless of the size of their shareholding—have equal rights with respect to shares of the same type. The key rights of minority shareholders include:

• The right to receive dividends and a share of the company’s assets upon liquidation.
• The right to participate in the management of the company through voting at the general meeting of shareholders (for holders of ordinary shares).
• The right to access information on the financial and business activities of the company, including obtaining copies of the charter, reports, and decisions of management bodies.
• The right to judicial protection, including the right to challenge decisions of corporate bodies that violate their interests.
• The preemptive right to acquire shares in the event of an additional issue.

Mechanisms for Protecting Minority Shareholders’ Rights

To prevent abuses by majority shareholders, the law provides for several special guarantees:

• Cumulative voting in the election of members of the supervisory board, allowing minority shareholders to consolidate their votes and promote their candidates.
• Restrictions on transactions with affiliated parties, requiring approval by the general meeting of shareholders to prevent asset stripping detrimental to minorities.
• The right to convene an extraordinary meeting if minority shareholders hold a certain portion of shares (usually at least 10%).
• The right to demand a share buyback by the company if a shareholder disagrees with major transactions or reorganization.
• The right to form associations or other organizations for the collective protection of interests.

Problems and Challenges in Protecting Minority Shareholders

Despite the legal guarantees, in practice minority shareholders often face the following issues:

• Limited access to complete and reliable information about company activities.
• Manipulation of quorums and agendas of general meetings.
• Abuses by majority shareholders during reorganizations and share issues.
• Insufficient judicial protection and protracted court proceedings.

Comparative Legal Aspect

Global practice shows that effective protection of minority shareholders requires not only formal rights but also well-developed enforcement mechanisms. In countries with mature markets (USA, UK, Germany), institutions of independent directors, derivative suits on behalf of the company, and strict disclosure control operate effectively.

In Uzbekistan, the legal framework is gradually developing, but there remains a need to strengthen judicial practice and enhance corporate governance culture.

Rights and Mechanisms for Protecting Minority Shareholders

Category of Right	Content of the Right	Protection Mechanism	Legal Basis
Property Rights	Receipt of dividends; share of assets upon liquidation	Mandatory dividend payments as per shareholders’ meeting decision; judicial recovery in case of violations	Law on JSCs, Arts. 26–28
Participation in Management	Voting at general meetings of shareholders (for holders of ordinary shares)	Right to challenge violating decisions; cumulative voting in board elections	Arts. 27, 66
Right to Information	Access to charter, reports, and decisions of management bodies	Obligation of the company to provide documents upon request; judicial protection upon refusal	Arts. 13, 26
Preemptive Right to Acquire Shares	Existing shareholders are offered shares in case of additional issue	Ban on placement without offering to minorities; right to contest violations	Arts. 35–36
Right to Demand Share Buyback	In case of disagreement with major transactions or reorganization	The company must repurchase shares at a fair price	Arts. 84–86
Convening Extraordinary Meetings	Minority shareholders owning ≥10% may initiate a meeting	Refusal by the company may be challenged in court	Art. 63
Protection from Affiliated Transactions	Restrictions on transactions with interested parties	Mandatory approval by the general meeting; right to challenge	Art. 84
Right to Association	Formation of associations and NGOs to protect interests	Collective lawsuits and representation in courts	Art. 26

 

Committee of Minority Shareholders

The Law of the Republic of Uzbekistan “On Joint-Stock Companies and Protection of Shareholders’ Rights” (new edition, 2014) includes a special section on the Committee of Minority Shareholders.

Rights and Powers of the Committee of Minority Shareholders

• Representation of Interests: Acts as a body expressing the collective position of small shareholders.
• Initiation of Issues: May propose items for inclusion in the agenda of the general meeting, especially concerning minority rights.
• Communication with Company Management: May submit requests to the supervisory board and executive body demanding information related to shareholder protection.
• Participation Rights: Representatives may attend supervisory board meetings (with advisory vote) on issues affecting minority rights.
• Judicial and Administrative Protection: The committee may represent minorities before state authorities and initiate collective court actions.

Obligations of the Committee

• Compliance with Law and Charter: Must act strictly within legal and corporate frameworks.
• Good Faith Representation: Must protect the rights of all minority shareholders, not specific groups.
• Information Disclosure: Must keep shareholders informed about its activities and measures taken.
• Prohibition of Abuse: May not use its powers to restrict others’ rights or gain unjustified advantages.

Significance of the Committee

This institution is an important mechanism for balancing the interests of majority and minority shareholders. It:

• Reduces the risk of corporate conflicts;
• Enables consolidation of “small” shareholders’ voices;
• Enhances transparency in corporate governance.

The protection of minority shareholders’ rights is a key element of corporate law and a guarantee of fair distribution of power and profits in joint-stock companies. For Uzbekistan, the priorities remain:

• Strengthening real control mechanisms over management activities;
• Developing the institution of independent directors;
• Improving judicial practice in corporate dispute resolution.