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A minority shareholder is an investor that holds less than a controlling interest in a given company. This condition may be due to the number of shares that are in the possession of the investor, or as a result of the type of shares that are held. In either case, the minority shareholder lacks sufficient influence to make an impact on the direction of the company that issues the stock without the support of other shareholders.
The most common example of a minority shareholder is one who holds stocks that provide voting privileges, but does not possess enough of those shares to control the business. Typically, the company remains the largest holder of the stocks, keeping at least 51% of the available shares within the control of the issuing corporation. This means that while the minority shareholder may control a substantial number of shares, they are never enough to actually have the final say in what happens with the business.
There are situations in which the percentage interest in the company is not the only factor in creating the status of a minority shareholder. If the shares held do not provide the investor with voting privileges, then the shareholder is not in a position to influence the movement of the company. When this is the case, the only real option is to go along with decisions made by shareholders who do have voting privileges, or sell the shares and seek investment opportunities elsewhere.
In most nations, there are regulations that at least partially protect the interests of the minority shareholder. These laws help to minimize the possibility of majority shareholders from employing strategies or making decisions that blatantly benefit the majority at the expense of the shareholders with a smaller stake. Even within that context, there is the potential for majority investors to make use of loopholes in those laws. There is also the possibility that the terms and provisions found in the governing documents of the corporation may be used to make decisions that do not on the surface appear to adversely effect the interests of the minority shareholder, but in the long run may limit his or her returns. For this reason, investors should look closely at which rights and privileges are granted as part of the purchase of any shares of stock, and what type of protections are provided under current trade regulations and the foundational documents of the corporation in question.
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