What Powers Do Shareholders With a 38% Stake Have in a Company?

When you hear that a shareholder owns 55% of a company's stock, it might lead you to believe they have significant decision-making authority. However, the actual powers and responsibilities of a shareholder depend on the laws and regulations in the jurisdiction where the company is incorporated. The situation changes significantly if a shareholder owns only 38% of the stock. Let's explore the rights and responsibilities of minority shareholders and what steps you should take to protect your interests.

Understanding Shareholder Rights and Responsibilities

The rights and responsibilities of shareholders, especially minority ones, can vary widely based on the company's Articles of Incorporation and Bylaws. Generally, a shareholder with 38% ownership does not have the right to dictate the company's decisions. Without a controlling stake, such as the 55% mentioned, the minority shareholder typically lacks the ability to unilaterally make significant changes or decisions.

Super-Majority Requirements and Unanimous Shareholder Agreements

In some jurisdictions, there are resolutions that require a super-majority of, for instance, 2/3 support to be passing. If there is a unanimous shareholder agreement, this could mean that certain actions require even more than 55% approval. For example, the transfer of the company, major mergers, or significant changes to the company's bylaws might need more than 55% of the shareholders to agree.

Minority Shareholder Protections

Moving away from traditional majorities, more and more jurisdictions are implementing minority shareholder protections. This means that certain resolutions may require a majority of the minority shareholders to approve. For instance, in a situation where a shareholder holds 95% of the shares, a resolution would still need at least 50% of the remaining shareholders to vote in favor to pass. This can provide a safeguard for minority shareholders and ensure they are given due consideration in significant decisions.

Real-life Example: Selling the Company

One of my companies encountered a situation where a significant minority shareholder had to be on board for a proposed sale. I wanted to sell the company, but I needed at least 51% of the minority shareholders to support the sale to pass the resolution. Thankfully, the offer was attractive enough to gain support from nearly 80% of the minority shareholders, but in another scenario, it could have failed. This highlights the importance of considering and appealing to the interests of minority shareholders in critical decisions.

Key Takeaways

Minority shareholders typically do not have decision-making authority unless they hold a supermajority stake. Many jurisdictions are implementing minority shareholder protections, thus requiring a majority of minority shareholders to approve certain resolutions. Consult a lawyer familiar with the laws in your jurisdiction to understand your rights and responsibilities.

In conclusion, while you might not have the final say with a 38% stake, understanding the legal framework and seeking legal advice can help protect your interests in significant corporate decisions.

Keywords: shareholder rights, decision-making authority, minority shareholder protections