Minority Shareholders Rights

A company which has a few numbers of shareholders is known as a closely held or close company. There are generally two types of shareholders in this type of company. These two types or groups are:

1) The first is the group of share holders possessing a controlling interest in the company.

2) The second group is of the shareholders who do not possess any controlling interest in the business.

So these second types of shareholders of the company who do not have controlling interest in it are known as minority shareholders of the company.

In comparison to other large company share holders the minority shareholders are required to work a little bit harder in order to safeguard the minority shareholder rights.  As there is an absence of proper market for the closely held company shares the shares, which are held by the minority shareholders are usually illiquid. Therefore many a times minority shareholders find that because of this less control they are exploited for majority shareholder’s benefit. In that case, they can take the help of minority shareholder rights.

There is no fixed or permanent, decided number of shareholders in closely held corporations. This condition of a closely held corporation exists where company shareholders maintain ownership in a small group or in particular “close.” Also another thing about the close company shares held by minority shareholders is that there generally does not exist a market for the sale of their shares, and this comes under minority shareholder rights.

Many a times the minority shareholders find that on selling their shares they get lesser amount in return than their expected amount in a closely held company. Also, pressure is put on the minority shareholders to sell the shares when they want to keep it. This is when minority shareholder rights can prove helpful for a person. The forms of the pressure can be different, in form of controlling shareholder’s demands, in form of forced merger or company acquisition or financial and family conditions. Generally the majority shareholders  elect the larger number of directors and the minority shareholders can only elect a few and this becomes the main reason behind  less control of minority shareholders in the actions taken by a the company.

The minority shareholders therefore sell shares at a discount and if it is said in percentage basis the equity stakes of minority shareholders equity stakes are sold in the market at 26 to 33% discounts against the market value. Minority shareholders are required to ask for protective contractual arrangements so that their minority interests remain of proper worth because the minority interest worth becomes low in spite of the value of the corporation or its assets.

Minority shareholder rights include all the rights that are usually given to all shareholders and the rights which are given under laws of state close corporation. State law governs the corporations and the corporate statute of the company contains the minority shareholder rights. These rights are:

•Right to vote on election of directors;

•Right to make amendment in corporate bylaws;

•Right to make amendment in articles of incorporation;

• Right to vote on main corporate events like mergers, liquidation, or sale of considerably the entire corporation’s assets;

• Right to take action by a written consent.

• Right to take part in annual stockholder meetings.

• Right to organize special stockholder meetings.

• Right to inspect the account books, records and the record of shareholders.