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What Are Minority Shareholder Rights?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 August 2014
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Minority shareholder rights are the legal and, in some arguments, moral rights held by particular shareholders. In a private company, they will usually be junior partners. In a publicly traded company, they can be individual shareholders or, if the original owners of the company retained at least 51% of the company upon flotation, it can mean all members of the public holding shares. The concept of minority shareholder rights involves recognition of the fact that the shareholders have a stake in the company, even though they could be outvoted on any issue.

The legal position regarding minority shareholder rights varies from state to state and from country to country. There are general principles that apply in most jurisdictions. In the United States, these principles are often considered common law rights, meaning courts will hold them to apply even if they don't appear in specific state statutes.

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One of the main principles of minority shareholder rights in the context of a private company is that the majority shareholders generally should 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 action. Some actions very clearly come under this category, such as a majority shareholder passing a motion that the entire company's assets be transferred to him personally. Other actions are less clear-cut, and in such cases, the rights of minority shareholders may only be upheld after a lengthy and costly court battle.

A majority shareholder attempting to either breach or ignore the fundamental rules set down in the creation of a company is normally considered to be violating minority shareholder rights. In the United States, these rules are known as the articles of association. Majority shareholders are usually also blocked from attempting to change the articles of association in a way that harms the interests of other shareholder, unless done with the agreement of all shareholders.

Another example of the rights of minority shareholder that applies in many states is the right to inspect relevant company documentation. This includes company accounts, contracts, sales agreements and other paperwork. Minority shareholders should usually have access to these documents so they can make sure the majority shareholders are acting responsibly.

Many of the principles of minority shareholder rights apply to publicly traded companies, as well as private corporations. The practical application of these principles may be more restricted, though. For example, a public company may refuse to allow shareholders access to documents beyond those that have to be publicly available. This prevents a competitor from buying a share in a company solely to get access to confidential and sensitive information.

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