A majority shareholder is a person or entity who holds more than 50% of shares of a company. If the majority shareholder holds voting shares, they dictate the direction of the company through their voting power.
This raises an important question: Can you force the majority shareholders to take over your stake? The short, general answer is no — majority shareholders have no legal duty or legal obligation to take over your shares.
Levels of Ownership Rights
Every company has a hierarchical structure of rights for the three main classes of securities that companies issue: bonds, preferred stock, and common stock. In other words, there’s a pecking order of rights.
In many cases, the majority shareholder is the company’s original owner or his or her ancestors. The majority shareholder’s controlling interest means he or she has more voting power and can influence the company’s strategic direction and operation.
Can the majority shareholder be removed? According to Lankford Law Firm, although it may be somewhat difficult, removing a majority shareholder is possible – for instance, if they have violated the original terms of the shareholders’ agreement of the company’s bylaws.
Can a majority owner fire a minority owner?
For example, if the minority owners are employed by the business, the majority owners can terminate that employment. Since one of the main advantages for minority owners in a small business is employment—buying into a job, in essence—this can deprive the minority owner of the main reason to stay invested.
Minority shareholders have limited rights to benefit from the operations of a company, including receiving dividends and being able to sell the company’s stock for profit. In practice, these rights can be restricted by a company’s officers’ decision to not pay dividends or purchase shares from shareholders.
There are several methods for reducing a minority shareholder’s value in the company, including:
- Encouraging or forcing a share buyout at a discount price;
- Diluting the holder’s stock shares;
- Restricting the shareholder’s access to corporate records, financial information, or key business records;
Purchase the Minority Shareholder’s Shares
If you cannot resolve the disagreement with your minority shareholder, you may wish to remove them from the company. Unless there are specific rights to do so in your company’s shareholders agreement or constitution, you cannot simply take a shareholder’s shares from them.
The shareholders in a general meeting are empowered to appoint and remove directors of the company, determine directors’ remuneration, appoint auditors and approve their remuneration, alter the company’s share capital, alter the memorandum and articles of association of the company, approve the conversion of the …
Rights of shareholders possessing at least 10% of shares
Right to demand a poll – in general, members holding 10% of voting shares (or five members who have the right to vote) can demand a poll in respect of a proposed resolution (s. 321).
Definition. Right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. The right is meant to protect current shareholders from dilution in value or control. Preemptive rights, if recognized, are usually set forth in the corporate charter.