When you purchase stocks from a corporation or create a corporation, you will become a shareholder of that corporation. There are various rights associated with becoming a shareholder. Here are some typical rights that shareholders have.
Most states give appraisal rights to shareholders. When shareholders object to the corporation’s actions that may diminish the value of their stock holding, then the may have this appraisal right to get the fair value of their stock investment from the corporation.
Normally, this right arises when the corporation engages in:
A consolidation or merger with another corporation;
Sale or transfer of all or substantially all of the corporate assets; and
Charter amendments that may adversely affect the value of the corporation.
Shareholders must follow the procedures promulgated by state laws in order to invoke their appraisal rights. Usually, it is required that the shareholder files a written objection, vote against the proposal, and make a written demand for appraisal and buy-out within a certain period of time.
Unless agreed otherwise, shareholders of the same class of stock will each have the same and equal right to share in the corporation’s dividends. The decision to declare dividends, however, is a business decision made only by the board of directors.
Corporations typically cannot make large gifts of their assets without first obtaining approval from the shareholders. Bonuses, stock option plans, and incentive plans not authorized under employment contract and paid to officers may also be subject to shareholders’ approval.
Almost all states allow shareholders some rights to inspect the corporate books and records. However, there are differences amongst the states on how much information a shareholder may obtain. Most of the time, this depends on the purpose of the request and the number of shares the shareholder owns.
Shareholders sometimes have the preemptive rights to buy additional stocks ahead of other investors so to maintain their same ownership interest in the corporation. This right, however, is usually not granted if it is not specifically provided in the corporation’s charter.
One or more shareholders may bring suits on behalf of the corporation and for its benefits. These suits are called derivative suits.
These suits are usually brought against individual officers or directors for waste and conflict of interest. Shareholders must follow the specific procedural rules set by state and federal laws in order to bring these suits to court.
There are experienced attorneys that specialize in dealing only with shareholders’ rights. If you are a shareholder, you may want to talk to a business attorney to learn more about your rights. If you believe your rights have been violated, you may want to contact an attorney to recover any losses you have suffered.