The Protection of Non-Controlling Shareholders in the Acquisition of Controlling Shares

Abstract

Kuwait seeks to become the financial hub of the Middle East. In pursuance of this vision, Kuwaiti lawmakers adopted foreign laws in the hope of producing results similar to those foreign nations. The application of some these laws was not as effective as expected. Protection of the minority shareholders of corporations is a fundamental issue in corporate governance. Prior to 2010, minority shareholders in Kuwait were not offered proper protection. The adopted laws endeavored to develop the legal system and close the loopholes of the old laws. Under the old laws, majority shareholders could sell the controlling blocks of the corporation without the participation of the remaining shareholders. The new laws provide protection for minority shareholders that is globally accepted and effectively implemented in many developed countries. One of the new rules is the Mandatory Bid Rule (MBR). The Mandatory Bid Rule requires shareholders, who own a minimum of 30% of the shares, to offer a buy-out to all remaining shareholders at the same price as the controlling shareholder. The Mandatory Bid Rule originated in the United Kingdom (UK). The Kuwaiti market is not fundamentally similar to the UK market. The business market in Kuwait is predominantly influenced by a small number of wealthy families or individuals, and state owned institutions. While appropriate for the UK business market, the MBR is not conducive to the culture of the Kuwaiti business market.This thesis will illustrate how the adoption of the Mandatory Bid Rule wasnot successfully applied and did not have a positive effect on the protection of minority shareholders. I will propose alternative legal remedies that should accomplish the failed objectives of the new laws in Kuwait. The objectives are to protect the minority shareholders, investors, and the market. These remedies are integral to the socioeconomic, political, and legal systems and the conditions of the Kuwaiti business culture.