Minority shareholders may not own a controlling interest in a company, but they can still assert a strong presence. This can even include weighing in on many decisions critical to the business’s future. It is not guaranteed, however, unless there is a shareholders agreement in place designed to protect minority shareholders and their initial investment. By being proactive in exercising their rights, they can maximize their impact, including selling or buying majority ownership at a later date.
Look for these details in a contract
Every company is set up a little differently, so it is wise to read through a contract to make sure that they can protect their interests. Some important details include:
- Director and officer rights: Getting a vote to pick the director and officers help ensure that the company has good stewardship sympathetic to all shareholders’ interests.
- Above-board ownership: Agreements should outline how much the stakeholders own.
- Valuation of shares: There should be a fair valuation method that will help avoid disputes over valuation down the road.
- Preemptive rights: This enables the right of first refusal or purchase if new shares are issued.
- Piggyback rights: This ensures that minority shareholders’ stock is also part of a deal where majority shareholders sell stock.
These contracts are often complicated
Legal agreements can cement business relationships, but they may not always look after the best interests of all who sign them. So it is essential for minority shareholders (or their attorney) to review all contracts to ensure that the agreement is fair and equitable for all involved. It can help avoid frustration and disputes at a later date.