## Facts

- The case involved two shareholders of a real estate company alleging that the company’s directors had misapplied funds and breached their duties.
- The shareholders sought to bring action against the directors for these alleged breaches.
- The key dispute concerned whether individual shareholders, rather than the company itself, could bring legal action for wrongs done to the company.

## Issues

1. Whether individual shareholders may bring legal proceedings on behalf of the company for wrongs done to the company.
2. Whether the majority of shareholders can ratify actions of directors, thereby precluding minority shareholders from suing.
3. Whether exceptions exist permitting shareholders to bring actions when the company is unable or unwilling to do so.

## Decision

- The court held that a company, as a separate legal person, is the proper claimant to sue for wrongs committed against it, not individual shareholders.
- The action was unsustainable since shareholders could not bring claims on the company's behalf if the majority could ratify the directors’ actions.
- Exceptions to the rule exist, notably derivative claims where the company is under the control of wrongdoers and unable or unwilling to act.

## Legal Principles

- The proper claimant rule: only the company itself can bring an action for wrongs done to it, establishing the principle of majority rule in corporate governance.
- The recognition of the company as a distinct legal entity underpins the principle; shareholders’ rights to litigate are generally curtailed to prevent disruption of collective decision-making.
- Majority rule allows shareholders to ratify actions, further limiting minority interference.
- Derivative claims are an exception, allowing minority shareholders to pursue litigation in specific circumstances, as now codified in sections 260-264 of the Companies Act 2006.
- Related principles include reflective loss, preventing shareholders from claiming for company losses (as outlined in _Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)_ [1982] Ch 204 and clarified in _Sevilleja v Marex Financial Ltd_ [2020] UKSC 31), and the corporate veil, affirming the company's separate legal personality (from _Salomon v Salomon & Co Ltd_ (1897)).

## Conclusion

_Foss v Harbottle_ established that the company itself, not its shareholders, is the proper entity to sue for wrongs done to it, reinforcing the principle of majority rule and the company’s distinct legal identity, while permitting exceptions through derivative actions and statutory developments under the Companies Act 2006.


Foss v Harbottle (1843) 67 ER 189