The minority shareholder is one who owns less than 50% of a company. In other words, this category groups together all the partners who individually own less than half of the assets of a commercial company.
It should be remembered that the greater the participation of the investor, the greater his power of influence in the decisions of the company. However, this does not mean that minority shareholders are deprived of participating in the management of the business.
It should be noted that some regulators use other criteria to consider a partner as a minority in their country. For example, the Commission for the Financial Market of Chile brings together in this category all shareholders who are owners, alone or jointly with others, of less than 10% of a company. This, provided that said percentage does not allow the appointment of a director.
Rights of the minority shareholder
Among the rights of the minority shareholder we have:
- Like majority partners, they receive active dividends and can make a profit by selling their securities. The latter happens when the value of the company increases over time.
- Although minority shareholders do not play a decisive role in the management of the business, they have the right to vote at the General Shareholders' Meeting.
- They maintain the right to be informed of the decisions of the company. That is, they can request accounting and financial information and documents. For example, the consolidated annual accounts.
- Minority partners can elect for themselves a single representative before the company. That way, they no longer have to spend part of their time getting directly involved in managing the firm.
- When a capital increase is carried out, the company is obliged to offer all shareholders a part of the newly issued securities. This portion is calculated based on what each partner would need to maintain their level of participation. This is known as the pre-emptive subscription right. The goal is to give priority to current owners over new investors.
Protection mechanisms for minority shareholders
There are mechanisms to protect minority shareholders that allow them to defend themselves against those who have a greater stake. The following stand out:
- Unified voting: Minority partners can decide to vote, or elect a single representative, to act in a uniform manner at shareholders' meetings. For example, they may agree not to support the closing of a line of business. Said alliances must be reported to the company and obey its statutes.
- Call a General Meeting of Partners: The law protects that a group of shareholders can call a General Meeting of Partners if they represent, for example, 20% of the capital stock. This depends on the law of each country.