Minority shareholder: status, rights, protection of interests

A minority shareholder is the owner of a non-controlling interest in the company's charter capital. It can be represented both as a legal entity and as one person. Non-controlling package does not give its owner the opportunity to participate in the management of the organization, for example, elect members of the Board of Directors.

Minority position in AO

Since a shareholder with a small shareholding can not be a full participant in corporate governance, his interaction with major shareholders is difficult. Holders of controlling stakes can reduce the value of minority shareholders' securities by withdrawing assets to a third party organization with which small shareholders are not connected. To prevent such situations and to establish relationships between shareholders in general in civilized countries, the rights of holders of unguided packages are legally established.

World practice of protecting minority shareholders

The legislation of developed countries provides for the protection of minority shareholders from the forced sale of securities to owners of large packages at a reduced cost in case the latter decide to buy up all the shares. In most cases, the protection of small shareholders is to limit the ability of majority shareholders and the Board of Directors to abuse their power. All norms established by laws are designed to expand the powers of minority shareholders and involve them in the management process.

Often the law grants minority shareholders such large rights that they begin to resort to corporate blackmail, demanding the repurchase of their shares at an inflated price through threats of legal proceedings.

Rights of minority shareholders in Russia

In the federal legislation there are norms that protect small shareholders. First of all, this protection implies the preservation of an independent, separate status for them in case of mergers or acquisitions. In the course of such processes, a minority shareholder may lose out due to a relative decrease in its share in the new structure. This leads to a decrease in the level of its influence on the governing bodies.

The laws provide for such measures:

1. For the adoption of a number of decisions, not 50%, but 75% of the shareholders' votes are required, and in some cases the threshold may be raised even higher. Such decisions include: amending the charter, reorganizing or closing the company, determining the volume and structure of the new issue, buying the company's own securities, approving a major property transaction, reducing the nominal value of shares with a corresponding reduction in the statutory fund, and so on.
2. Elections to the boards of directors should be conducted by cumulative voting. For example, if a minority shareholder owns a 5% stake, he can elect 5% of the participants in this body.
3. If 30, 50, 75 or 95% of all issued securities are purchased when buying shares, the buyer must grant the right to other owners of the securities of the firm to sell their securities to him at a market price or higher.
4. If a person owns 1% of the shares or more, it can appear in court on behalf of the firm against management in the event of losses incurred by shareholders through the fault of directors.
5. If a shareholder owns 25% of all securities or more, he must have access to accounting documents and protocols drawn up at board meetings.

Conflicts between shareholders and their consequences

The stability of the company and the transparency of its actions positively affect the stock price and attractiveness for investors. Numerous legal proceedings and criminal cases against management personnel and shareholders, violation of laws by persons who have certain power within the company has the opposite effect.

If a minority shareholder or group owns more than 25% of the stake and has interests other than the majority's preferences, then making critical decisions for which 75% or more is needed is difficult.

Greenmail

The most common type of corporate conflicts is called greenmail. This phenomenon is nothing but blackmail on the part of the minority shareholder. It has many different manifestations and can seriously undermine stability within the company.

Greenmale means that one minority shareholder or several minority shareholders who have joined the group begin to disrupt the adoption of all decisions that are important for the company. It also includes deliberate actions, leading to the fact that companies have to pay heavy fines. In addition, minority shareholders are able to collaps the value of shares by various methods available to them.

Ultimately, greenmail is reduced to one of two purposes: promoting one's own interests and gaining power over the company, or forcing majority shareholders to buy back shares from small holders at an unreasonably high price.