Meaning of Minority Shareholder
The minority shareholder is the owner of the shares of an organization who, although he has the right to vote at meetings, does not have enough influence to decide for himself. It is a common profile in both public and private companies.
Since the shareholder‘s shareholding is insufficient to become a controlling shareholder or majority shareholder, his decisions often overwhelm him.
However, there are legal provisions designed to provide protection and distribution of administrative authority.
Knowing them is a great way to wield power in the company you invest in, even as a minority shareholder.
Characteristics of a Minority Shareholder
There are two ways to become a minority shareholder in an organization.
In the former, the investor purchases preferred stock .
As a general rule, this type of share does not grant voting rights, so the shareholder cannot take a position on organizational issues and influence its direction.
In the second, common stock is purchased .
The right to vote, in this case, is guaranteed. However, compared to concentrated plots held by other investors, the amount acquired becomes insignificant and the weight of your opinion is reduced.
Minority Shareholder Advantages
It is important to note that being a minority shareholder is by no means a bad thing.
Rather than focus on lack of influence , we need to remember that investors do not necessarily want to have the same level of command as a controlling shareholder.
For them, it may be enough to enjoy the advantages that shares offer, without the “ weight ” of majority responsibilities.
In other words, they can vote (if they own common stock), receive dividends and interest on the principal, and also have priority over the purchase of new shares and subscriptions. For many, it is enough.
Rights of Minority Shareholders
From a legal point of view, the minority shareholder is seen as one of the vulnerable parties in the corporate relationship. For this reason, there are legal instruments designed only to suppress an eventual oppression of their interests.
In other words, the articles of the Law on the subject prevent minority shareholders from being put “ on the sidelines ” by the most powerful shareholders.
Among the main “ weapons ” of the minority shareholder are:
The possibility of giving up:
If the minority shareholder shows that the company’s actions have caused him some loss, he can withdraw from the company and receive the same amount paid for his shares.
The restriction on the number of non-voting shareholders:
At most, 50% of the shares may not carry voting rights (ie, be preferred shares). Therefore, decision-making power is prevented from being concentrated in a few investors.
If the company undergoes a transfer of control, it is mandatory that the amount paid per share corresponds to at least 80% of the price spent in the control block.
Participation in the board of directors:
The representative of the minority shareholders, united in blocks that constitute at least 10% of the share capital, can elect a member and an alternate in the election of new directors.
The institution of a fiscal council:
In cases of mistrust, minority shareholders can unite and demand the creation of an independent fiscal council, designed to evaluate the balance sheets and other statements of the company.
Postponement of meetings:
Any shareholder may request an increase in the term to convene the meeting or, otherwise, its interruption.