Rights of a Minority Shareholder in a Company

What Are the Rights of a Minority Shareholder in a Company?

calender-alt November 08, 2022
user-alt By Peter Friedmann

As an employee, you may find yourself being offered the opportunity to hold or purchase shares within the company that you work for. In some cases, you may be considered a minority shareholder – meaning that you will be part of a group of shareholders who typically hold less than 51% of any given company.

The potential to become a minority shareholder may leave you wondering about the rights of minority shareholders in private companies. This is especially an area to ask questions on when you consider that you cannot sell shares from private companies on open markets like you can with shares from a public company.

Below, let’s take a look at some of the rights of minority shareholders in private limited companies.

What is a Minority Shareholder?

First off, let’s define what a minority shareholder is.

A minority shareholder is a shareholder who has no kind of control over a company. As mentioned above, minority shareholders hold less than 51% of any company.

And while minority shareholders might have some kind of input over a company’s affairs, the majority shareholders will usually have the most input and control over the company’s affairs, ventures, and operations.

What are the Rights of a Minority Shareholder in a Company?

The rights of a minority shareholder in private limited companies are typical as follows:

  1. The right to participate in meetings
  2. The right to vote on the election of company directors and other major decisions
  3. The right to inspect the company’s books and records that are relevant to a shareholder’s interest
  4. The right to dividends

These are common rights that a minority shareholder can expect, though you will want to read through any contracts and agreements carefully.

Another key point to be aware of is under Ohio law, shareholders are afforded rights in a number of different areas including dividends and distributions, and voting.

For example, under Section 1701.41 of the Ohio Revised Code (ORC), the following is laid out for notice of meetings:

“Written notice stating the time, place, if any, and purposes of a meeting of the shareholders, and the means, if any, by which shareholders can be present and vote at the meeting through the use of communications equipment shall be given”

Written notice is expected to be given by personal delivery, mail, or any other means of communication that has been authorized by the individual shareholders.

To read more about shareholders rights in detail, see Section 1701 of the ORC.

How Can Those Minority Shareholder Rights Be Violated?

Majority shareholders have something called a fiduciary duty to minority shareholders and the company in general. This essentially means that they are expected to act in good faith and with fairness in their decision making.

Majority shareholders, per fiduciary duty, are expected to comply with relevant laws, and the company’s regulations, and to not self-deal.

Fiduciary duty can be breached in several ways including:

  • Breaching contracts, agreements, and other legal obligations that oversee the company’s affairs
  • Purposefully keeping minority shareholders out of decisions
  • Setting restrictions on minority shareholders who want to transfer their interests
  • Withholding or preventing dividend payment

Breaching fiduciary duty often goes against federal and state laws and company regulations.

In some cases, minority shareholders may be able to file a lawsuit against any shareholders that have breached their duty. Consult with an employment lawyer if you believe that fiduciary duty has been breached as they will be able to review the actions taken and explain your rights moving forward.

Have Further Questions? Connect With Us Today

If you have more questions about the rights of minority shareholders in private limited companies or believe that you are on the receiving end of minority shareholder oppression, reach out to the executive employment lawyers here at The Friedmann Firm today.

We are solely dedicated to ensuring that all employees are treated fairly and legally at work, including helping you to understand your rights in regard to any shares you hold in your company. We have offices located in Columbus, Toledo, Cleveland, and Cincinnati.

To schedule a free and confidential consultation, contact us online or over the phone at 614-610-9755.

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