Minority shareholder rights are the legal and moral rights of private shareholders, and involve recognition of their stake in the company. Majority shareholders must act in the best interest of the company, and minority shareholders have the right to inspect relevant company documentation. These principles apply to both private and publicly traded companies, but may be more restricted in practical application.
Minority shareholder rights are the legal and, in some arguments, moral rights of private shareholders. In a private company, they will usually be junior partners. In a publicly traded company, they may be individual shareholders or, if the original owners of the company retained at least 51% of the company at the time of the float, they may mean all members of the public shares. The concept of minority shareholder rights involves recognition of the fact that shareholders have a stake in the company, even though they could be voted out on any matter.
The legal position regarding minority shareholder rights varies from state to state and country to country. There are general principles that apply in most jurisdictions. In the United States, these principles are often considered common law rights, which means that courts will apply them even if they do not appear in specific state statutes.
One of the main tenets of minority shareholder rights in the context of a private company is that majority shareholders should generally act in the best interest of a company. This can override the fact that a majority shareholder, or multiple shareholders acting together to form a majority, can vote in favor of any share. Some actions clearly fall into this category, such as a majority shareholder approving the transfer of all company assets to him personally. Other actions are less clear cut, and in such cases minority shareholder rights can only be upheld after a long and costly court battle.
A majority shareholder who attempts to violate or ignore the fundamental rules laid down in the creation of a company is normally considered to be violating the rights of minority shareholders. In the United States, these rules are known as the statutes. Majority shareholders are also generally prevented from attempting to change the bylaws in a way that harms the interests of other shareholders, unless it is done with the agreement of all shareholders.
Another example of minority shareholder rights that applies in many states is the right to inspect relevant company documentation. This includes business accounts, contracts, sales agreements, and other paperwork. Minority shareholders generally need to have access to these documents to ensure that majority shareholders act responsibly.
Many of the principles of minority shareholder rights apply to publicly traded companies as well as private corporations. However, the practical application of these principles may be more restricted. For example, a public company may refuse to allow shareholders access to documents beyond those that must be publicly available. This prevents a competitor from buying a share in a company solely to gain access to sensitive and confidential information.
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