Allowing people to buy shares of your company can inject needed cash into your enterprise. Making your business available to shareholders, however, also requires honoring their rights. A failure to do so could invite litigation from one or more shareholders.
The exact rights your shareholders enjoy will depend on the policies or bylaws of your business. Still, some investor rights will be common across nearly all businesses. Business Insider explains some rights that just about any shareholder should have.
The right to receive returns
Shareholders invest in a company with an expectation to gain returns on their money. The general economic rights of a shareholder include receiving dividends from company profits or selling their stock. If the business dissolves, shareholders also have the right to seek assets from the company.
Rights to control the business
Shareholders have some degree of control over business policies and governance. Depending on the structure of your company, your shareholders may have the right to vote on directors who will implement policy. Common shareholders tend to have voting rights while preferred shareholders, who receive dividends before common shareholders, do not.
The right to information
A shareholder also has the right to acquire information about the business. Certain kinds of information may include the following:
- board meeting minutes
- articles of incorporation
- financial statements
- other administrative records
The degree of information shareholders receive will vary since private companies may keep more of their information confidential, even from shareholders. Additionally, shareholders sometimes have to justify information requests for more in-depth financial or administrative information.
The right to litigate the business
Shareholders cannot sue their companies for any reason. However, a business that violates the fiduciary duty to investors could form a strong basis for a shareholder lawsuit. Make sure you know the rights of your shareholders to prevent possible conflict.