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Majority rules, minority rights

Bryce Sanders

• The right to maintain proportional ownership – The firm cannot dilute the ownership of minority shareholders by issuing additional shares without giving them the right to purchase enough new shares to retain the same proportion of ownership.

• The right to bring in a resolution to a shareholder vote – Subject to rules regarding minimum shareholding requirements and format guidelines, shareholders may submit a resolution to a vote of shareholders. These are familiar to shareholders who vote their shares by mail or online. The votes are addressed at the annual meeting. Often the company recommends whether shareholders should accept or reject the proposal.

Key Points

Traditionally, minority shareholders invest in a company in the hope it will be well run and increase the value of their shares, then look to exit at a point where they believe maximum value has been achieved

Minority shareholders can also be founders who have sold the business, foreign investors or shareholders retaining shares in a firm after the majority of shares have been acquired in a takeover.

Although businesses are controlled by majority shareholders, minority shareholders do have certain rights and can exert some influence.

Unrest can occur among minority shareholders when majority shareholder actions affect the value of their shares