The concept of “majority rules” that has been ingrained into us holds little hope for those who are always in the minority. When it comes to corporate governance, being a minority shareholder can often feel like you’re only along for the ride. However, there are certain shareholder agreements that can provide you with greater voting power and help alleviate your feelings of lack of control.
What is a shareholder agreement?
A shareholder agreement is a contract between two or more shareholders of a corporation that is a supplement to the corporation’s governing statutes, articles of incorporation, and by-laws. These agreements help ensure that the company is run properly and smoothly, and that the rights, obligations and privileges of the shareholders are clearly defined. They can be comprehensive documents addressing a number of issues, or a singular document that addresses just one issue.
Voting power of shareholders
As the name indicates, majority shareholders typically hold the decision making power, which can result in minority shareholders facing unwanted results. If you are a minority shareholder, there are a few ways that you can increase your voting power:
Voting Agreement. Also known as a “pooling” agreement, a voting agreement is where two or more shareholders agree to vote their shares as a block — either for one matter or for various matters going forward.
Voting Trust Agreement. This agreement enables two or more shareholders to transfer their shares to a voting trustee who then votes on behalf of those shareholders according to the conditions and terms of the voting trust agreement.
Rights of minority shareholders
The laws of the state where a company is incorporated govern minority shareholder rights. For example, in Arizona there are three main minority shareholder rights:
Right of inspection — a minority shareholder has the right to inspect the company’s books, records, stock ledger and shareholder list upon written demand.
Right to bring a derivative claim — a minority shareholder has the right to bring a derivative claim on behalf of the corporation providing that he or she was a stockholder at the time the cause of action arose and meets other standing requirements.
Right to be protected against oppression — a minority shareholder has a right to protection against oppression by majority shareholders and may bring a direct claim against the controlling shareholder(s) for breach of fiduciary duty.
Williams Commercial Law Group, L.L.P., provides strong legal advocacy for companies involved in business lawsuits. We are known for using our skills, experience, and cutting-edge technology to get great results, whether after trial or through a favorable settlement. Call us today at (602) 256-9400 and schedule an appointment to meet with us about your case.