Publicly-traded companies allow investors to purchase stock as a means of generating capital. An organization can use the funds obtained through the sale of stock to expand or improve the business. Shareholders acquire an interest in a company by purchasing stock, making them important to the company’s success.
They then have a right to receive dividends when the company is profitable to compensate them for their investment. They can also help guide the company’s operations by discussing the company’s performance and voting at shareholder meetings. Their goals usually include helping the organization be as successful and profitable as possible.
Typically, leadership within an organization makes certain to uphold the rights of shareholders by holding regular meetings and paying dividends as appropriate. Unfortunately, sometimes the shareholders at a company face misconduct. A group of shareholders or a majority stakeholder may try to freeze out minority shareholders.
How can shareholders assert themselves in a freeze-out scenario?
Documenting what transpires
A shareholder freeze-out can involve a variety of inappropriate behaviors, typically with the intent of forcing shareholders to sell their stock. In some cases, companies stop providing dividends despite reporting profits each quarter. Other times, they may deny shareholders access to meetings or may prevent them from voting at meetings.
Documenting how the organization has infringed on the rights of shareholders is a key step for the protection of those who have invested in a business. They need proof of the company’s misconduct to address the issue with leadership or majority shareholders. In the worst-case scenario, their documentation can serve as evidence in civil court.
Taking legal action
Individual shareholders or a group of minority shareholders facing a freeze-out can initiate litigation. Civil court judges have the authority to take a variety of actions to remedy serious disputes. Judges can issue injunctions or award them damages. Shareholders may request specific forms of intervention depending on the exact misconduct they have experienced and the impact it has had on them as individuals or a group.
Shareholders experiencing freeze-out attempts may need help evaluating their options and preparing to initiate business litigation. Shareholder disputes can sometimes prove damaging to a company’s finances and reputations if not handled appropriately. Preparing properly can allow for a resolution in civil court while minimizing the negative impact that the lawsuit may have on the organization in the long run.