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Can a shareholder lose their rights and authority?

On Behalf of | Mar 1, 2023 | Business law |

When companies need funds or want to access the national marketplace, they may start offering stock for sale, allowing existing and/or potential shareholders the opportunity to purchase an interest in the company. Shareholders often provide crucial funding to help businesses continue growing or overcome financial challenges.

Their investment in an organization entitles them to certain rights. Typically, shareholders can attend meetings wherein everyone discusses the future of the organization. They will have the right to vote on the company’s future and will also receive dividends paid out when the organization generates profit. Unfortunately, shareholders sometimes invest in organizations that are hostile to smaller investors.

Majority shareholders may freeze out minority shareholders

Sometimes, a group of people who have invested in an organization will agree to cooperate to achieve certain goals regarding the direction the company takes or the leadership they will appoint. Other times, majority shareholders may want to buy back some of the stock and reduce how many shareholders have an influence on the organization.

Those in the majority may take several steps that infringe on the rights of the minority shareholders in a freeze-out scenario. They may block them from voting or consistently outnumber them at meetings. They may unfairly deny them dividends or try to manipulate them into selling their interest in the company.

Such freeze-outs may start suddenly and end just as quickly or may persist for months. In some cases, the actions of the majority shareholders are illegal and could therefore lead to court. Other times, they do not technically violate the law or the agreement that the shareholder has with the organization, preventing affected shareholders from fighting back.

In a corporate battle, shareholders often need help

Whether a shareholder has tired of the conflict involved in running an organization and wishes to sell their shares in a favorable arrangement or wants to fight back against conduct that they view as an infringement on their rights and contract, they may need the help of their own legal representation.

Learning more about corporate law and getting help to address challenges that undermine the value of investments will benefit those invested in large businesses.