Investing in company shares can be a good opportunity to expand your own business. However, when entering the capital of another business, it is necessary to correctly approach the method of acquiring shares and the size of the share package in order to protect yourself, as the owner of part of the company, from claims by other shareholders.
Minority Shareholder: Who is it?
Minority shareholder (minority) is a company shareholder (individual or legal entity), the size of which does not allow him to directly participate in the management of the company (for example, by forming the board of directors). Such a block of shares is called “non-controlling”. Minority shareholders have a small share of the stock, among their advantages is the ability to receive dividends without incurring a large loss.
The minority shareholder does not take part in the direct management of the company, and because of this, it is not so easy for him to fight with the opinion of shareholders who have a controlling stake. In practice, minorities have the following rights:
- receiving dividends;
- receiving part of the funds after the liquidation of the company;
- obtaining complete information about the company’s activities;
- the right to purchase shares of an additional issue to protect against dilution of the package;
- the right to require majority shareholders to buy back their assets at market price if a minority shareholder voted against major shareholder decisions.
The law stipulates that after the main shareholder has 95% of all assets of the company, he has the right to force minority shareholders to sell the remaining shares.
Thus, it is a natural or legal entity that has a minimum of rights before other shareholders. But in any case, the legislation provides minorities with sufficient rights to be able to influence the activities of the organization. Therefore, the owners of large corporations are more often afraid of the so-called “corporate blackmail” (so-called Greenmail), when a minority can paralyze the company’s activities with the help of a court.
Rights of a Minority Shareholder
Among the rights of a minority shareholder, we have:
- Like most partners, they receive active dividends and can profit by selling their securities. The latter happens when the value of the company increases over time.
- Although minority shareholders do not play a decisive role in the management of the business, they have the right to vote at the General Meeting of Shareholders.
- They retain the right to be informed of the company’s decisions. That is, they can request accounting and financial information and documents. For example, a consolidated annual report.
- Minority partners may elect one representative before the company. Thus, they will no longer have to spend part of their time directly participating in the management of the firm.
- When the capital increase is carried out, the company is obliged to offer all shareholders a part of the newly issued securities. This portion is calculated based on what each partner needs to maintain their level of participation. This is known as the right of pre-emption. The goal is to give priority to current owners over new investors.