Minority shareholders can play a key role at a thriving business. Individuals who have invested in the company provide it with revenue. They also help ensure that a diverse group of people make decisions about the future of the organization.
As is the case with any significant investment, shareholders accept a degree of risk when they invest in an organization. However, they generally have certain protections. Many of those protections come from either common law or the terms of a shareholder agreement.
What are some of the most important protections extended to minority shareholders?
1. The right to attend meetings and vote
One of the most essential privileges extended to shareholders is the right to participate in company development. They can attend regular meetings along with other shareholders and organizational leadership.
At those meetings, shareholders can vote on certain matters related to the company’s operations. While minority shareholders on their own can’t make decisions that control the company, their votes still matter. As a group, their opinions can have a major influence on the future of the business.
2. The right to review records and finances
For shareholders to make the right decisions about the future of the company, they typically need to be familiar with the company’s current circumstances. They should have access to basic information about company operations, including financial records.
The right to review financial records can provide insight into how the company has performed and what the company may need to change to ensure returns for shareholders. Allowing those invested in the company to access financial information is crucial for the protection of minority shareholders.
3. The right to litigate when necessary
In some cases, leadership within the organization or a majority shareholder might violate the rights of minority shareholders. These parties might attempt to freeze out those shareholders to force the sale of their interest in the company. They may try to deny them access to meetings or financial records.
Shareholders can file lawsuits in response to violations of their rights. They can also take legal action to prevent certain moves on the part of company leadership. Minority shareholders concerned about an organization in which they have invested or potential violations of their rights may need help reviewing the situation.
Examining shareholder agreements and other key records can help shareholders determine whether they may need to take legal action. Shareholders who understand their rights and assert themselves may better protect their investments and their status as shareholders.
