The Rights of Minority Shareholders

Here in America, the great thing is that minorities matter, and have a voice—and that includes if you are a minority shareholder. Yes, don’t let the “minority” word fool you when it comes to shareholders. Because as a minority shareholder, you do have rights, and if you’re a business with minority shareholders, you should be careful not to trample on or ignore these important rights.

Stock in Publicly Traded Companies

When we buy stock in larger companies off of the stock market, we almost always are minority shareholders, as we would expect to be. But those companies are subject to so much government regulation, and have so many shareholders, that we expect that they are being run efficiently and safely.

Smaller Companies

The problems come with smaller companies that are not publicly traded. There, shareholders may have a larger role, and the company’s leadership may be less tested or experienced. And minority shareholders can find themselves in a bind, on the one hand wanting to protect their interest (and their dividends), but on the other hand, finding that their minority ownership doesn’t give them much of a voice in the governance of the company.

Limited Rights

Minority shareholders must be treated equally to all other shareholders who have the same type, or class, of shares.

But many minority shareholders have little or no right to even vote on company matters. Unlike “regular” shareholders, you may not even have the legal right to inspect vital company records (although some records, like Bylaws or resolutions, you may have a right to inspect, and your rights to inspect documents could be expanded or limited by your shareholder’s agreement).

You do have the right to get basic information about the company—its direction, how it is doing financially, and to have background on the owners or officers. Basically, if there is information that could affect the health of the company, and thus, the value of your shares, you have the right to share that information.

Shareholder Derivative Lawsuits

You do have a right to investigate any possible breaches of fiduciary duties—for example, to know whether corporate officers may be self dealing, or have conflicts of interest, or whether they may be stealing from the company.

Your right to all of this information is there even if you don’t have a right to vote on them. So, just because you don’t have a right to vote on a corporate decision, is not a reason why you can be denied information about those decisions that the company is making.

Importantly, minority shareholders also have standing—that is, the legal ability—to file shareholder derivative lawsuits. These are lawsuits that allege that the company and its shareholders are causing harm to all of the shareholders, because of mismanagement or theft or breaches of fiduciary duties.

Call the West Palm Beach business lawyers at The Law Offices of Larry E. Bray today for help and legal guidance about your rights as a shareholder or if you feel the value of your shares are being affected by corporate mismanagement.

Sources:

superlawyers.com/resources/class-action-and-mass-torts/massachusetts/what-is-a-shareholder-derivative-action/

floridabar.org/the-florida-bar-journal/does-a-florida-minority-shareholder-in-a-closely-held-corporation-owe-a-fiduciary-duty-to-fellow-shareholders/