Rights of Minority Shareholders in Small Companies

Many small companies grow their business by selling shares of stock in the company. Oftentimes, as time goes on, the group of majority shareholders may attempt to remove the minority shareholders from the company. Perhaps there are different ideas about the direction of the company, personality differences have developed, or the majority shareholders simply want all of the stock to control. Whatever the reason, there are instances in which majority shareholders attempt to push out the minority shareholders. However, minority shareholders have rights regarding their shares in a company, and these rights can be enforced by law.

Fiduciary Duty
Under the law, the majority shareholders have a fiduciary duty toward the minority shareholders. They must deal with them honestly, in good faith, with candor, loyalty, and fairness. The majority shareholders must always act in compliance with the shareholders’ agreement. If a majority shareholder breaches his or her fiduciary duty, the minority shareholder may file a shareholder derivative action, which is a type of lawsuit. If a majority shareholder acts in a way that is not in the best interest of the company, pays him or herself a high salary, or sells stock that is a deal favorable only to the shareholder, a minority shareholder may have the right to sue.

Access to Financial Records
A minority shareholder should have the same rights as a majority shareholder to vote his or her shares, attend meetings, and have full access to the company’s financial records.

Minority Discount
When a private company begins to value its company stock to sell or transfer ownership, a minority discount should be assigned. This means that the minority shares are not as valuable because they do not provide as much ownership in the company as other shares. The benefit to this is that a minority shareholder can purchase shares for less than majority shareholders.

Benefits of Shareholding
Minority shareholders should have the same rights to benefit from shareholding as majority shareholders. For example, if dividends are received by majority shareholders, minority shareholders should also receive dividends. If a minority shareholder believes that a majority shareholder is suppressing his or her rights in any way, the minority shareholder may have the basis for a strong lawsuit.

Communication With Other Shareholders
Minority shareholders have the right to communicate with other shareholders regarding their common business interests in the company. Any stockholder who is unsatisfied with some internal management of the company has the right to request the stock register that contains the name and addresses of the other stockholders to communicate with them regarding corporate management. Any shareholder lists, organizational documents, minutes, or other records should be made available so that shareholders can communicate with each other about the internal process of the company in which they own a part.

Contact an Experienced Business Attorney Today
If you are a minority shareholder and have concerns about your rights, you should take steps to ensure that those rights are protected. Protect your financial interests by visiting with an experienced business attorney at the Law Office of Kris Mukherji at (858) 442-5747 to learn how you can implement a successful strategy to ensure your shareholder rights are protected.