For businesses formed as a corporation, there are one or more shareholders who own stock in the company. These shareholders all share a basic set of rights. These rights are governed by the laws of the state where the company is headquartered – Minnesota in our case. These shareholder rights can also be governed by the company’s bylaws.
- The Right to a Share in the Company’s Profits: When a company pays out a portion of its profits to owners, which are taxed at a different rate from general income, then those profits are divided among the owners according to the percentage of the total stock someone has in the company. In addition to profit sharing, owners of stock have a right to dividends any time the board of directors declares a dividend payment. In the event the company is liquidated, shareholders are in line to receive a share of the assets.
- The Right to Elect the Board of Directors: Owners can influence the management and direction of a company by exercising their right to elect the Board of Directors. For smaller companies with fewer shareholders, the majority owner often sits as the chairman of the board. Larger companies with a more diverse shareholder base will have a more diverse set of board members.
- The Pre–Emptive Right to Buy Shares: If a publically-held company decides to issue new shares, the current shareholders have a right to purchase those shares before they are opened to others. Smaller, privately-held companies often have a buy-sell agreement in place where the company and other shareholders are required to first offer all sales of shares to other shareholders before offering them to an outside party.
- The Right to Vote at Shareholder Meetings: Corporations are required to hold annual meetings of shareholders to cover major business decisions such as mergers and acquisitions, significant shifts in corporate strategy, and changes to the corporation’s governing laws. This is also the time when the Board of Directors is elected and details of the health of the business are shared.
In addition to these basic rights, other rights can be created in the company by-laws. Often, companies have multiple classes of stock including preferred shareholders. These shareholders generally have different rights from common stock holders, including a right to get a share from the assets in the event of a liquidation before the common shareholders.
For minority shareholders, Minnesota law has a number of protections in place designed to keep them from being completely at the will of the majority, especially when the majority acts in a manner that is unfair or prejudicial to the minority shareholder. In addition to wide judicial discretion to keep companies playing fair with minority shareholders, Minnesota law also requires companies allow these shareholders to inspect the corporate records.
Virtus Law Firm has experienced business attorneys on our team who are able to advise both businesses and shareholders on set up and document drafting. They can also help negotiate issues when a conflict arises between the shareholders. Give us a call at 612.888.1000 or contact us by email at firstname.lastname@example.org.