Four Things You Need to Know as a Shareholder

ShareholderIf you’re a shareholder in a corporation, you have certain rights, and not just the right to receive a dividend or sell off your stock for money. Shareholders are, after all, essentially the owners of a corporation, and as an owner (or, at least, a part-owner), you’re entitled to have a say in how your company operates. However, not all these rights are obvious and may require you to do a little extra legwork to enforce them.

Not all shareholders necessarily have the same rights.

Some companies issue multiple “classes” of stock, which can have different rights from one another. For example, some corporations will issue both “voting” and “non-voting” stock. Non-voting stock will still receive dividends and can be sold on the market, but they have no ability to vote at shareholder meetings, meaning (unlike those with “voting” stock) they have no say over the company’s bylaws and no right to choose who will be on the board of directors. There are also certain companies that will issue dividends based on “classes” of stock, with higher classes receiving the proceeds of a dividend before the lower classes do.

You have the right to request an accounting.

On top of the shareholder reports generally issued every fiscal quarter, every shareholder has a right to request a report on the company’s accounts on demand at reasonable intervals. This is a measure to keep the company’s directors and executives honest since it’s easy for them to use their positions within the company for all manner of chicanery. After all, a company’s profits are supposed to belong to its owners (i.e. its shareholders), not to its executives or directors.

You can sue the company and its executives for misconduct.

There are two kinds of lawsuits a shareholder can initiate. First, there are “direct suits,” which are brought by a shareholder for a violation of the shareholder’s rights. Second, there are “derivative suits,” where a shareholder sues on behalf of the company, usually to address a director or executive breaching their legal duties towards the company. A derivative suit can also be brought to stop a wrongful sale of company control, such as a merger with (or acquisition by) another company without shareholder approval.

Minority shareholders have protections against majority shareholder bullying.

In a corporation, one share of company stock equals one vote (barring special cases like the “non-voting” stock above). That means, if one person holds the majority of the shares in a company, they can effectively outvote every other shareholder by themselves. However, that doesn’t mean minority shareholders simply need to sit back and let the majority shareholder do whatever they want. Even a single share of a company’s stock is enough to grant shareholder rights, allowing you to do all the things above. Additionally, majority shareholders have a fiduciary duty towards minority shareholders and can be sued for breaching that duty.

The business attorneys at Blodnick, Fazio & Clark have the experience you need to make your business successful.  If you want assistance in incorporating your business, or you’re interested in learning more about the benefits of incorporation, please call our Nassau County business lawyers at (516) 280-7105, or, for our Suffolk County business lawyers, call (631) 669-6300.

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