Shareholders are individuals who have invested money in a company in exchange for a portion, or “share,” of ownership. Majority shareholders own more than half of a company’s shares and minority shareholders own less than half. While it makes sense that the more shares you own, the greater your interest – and voice – in the company, that doesn’t mean that those who own smaller portions are without rights. Though minority owners have less power than those in the majority, they still have the right to vote, to receive dividends, and to make claims against officers and directors if they think that their rights are being abused or oppressed, and even to force the dissolution of the company if there is enough support for doing so.
The term minority shareholder gives the impression that these owners’ power is limited, but much depends on the terms of the company’s shareholder agreement. In all cases, minority shareholders have some legal rights, including being able to file a claim against directors or officers who they believe are acting inappropriately, fraudulently, or in their own self-interest rather than the interests of the organization or the shareholders.
When there is disagreement among shareholders about the direction that a company is going in, minority shareholders can band together and vote as a block in order to take greater control. This is particularly effective when it comes time to approve or disapprove of a proposed new board member or officer. They also have the right to sell their shares at fair market value if they don’t approve of a move that the company is about to take.
Perhaps the most important right that minority shareholders have is the right to sue if they feel that the organization’s board of directors, or an individual board member, if they believe that they are being oppressed or abused, or if they see that steps are being taken that are harming the company itself.
Not every decision that is made on behalf of a company is abuse, oppression, or a breach of fiduciary duty. Knowing the difference between a philosophical difference and fraud or failed leadership is essential to guiding minority shareholder actions in the face of a dispute. For assistance, contact our experienced business attorneys today to set up a time to meet.