Shareholders' Rights in Tightly Held Corporations
Also known as a closely held corporation, a tightly held corporation has a relatively small number of shareholders in comparison to corporations that trade on a stock exchange. As a tightly held corporation does not trade shares on the public markets, shareholders cannot easily sell their shares if they disagree with the company's management. Corporate laws vary by state, but most provide for similar basic shareholders' rights, which can help shareholders in a tightly held corporation protect their investment interests.
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Voting Rights
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Shareholders in a tightly held corporation receive a vote for each share of stock they own. This gives them the right to vote to elect company directors at shareholder meetings, and change corporate bylaws and other corporate rules. In addition, they have the right to vote on major company issues, such as corporate mergers, company dissolution and the sale of major company assets.
Other Basic Rights
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Shareholders in tightly held corporations have the right to examine company financial records, the list of shareholders and company accounting books. In addition, they have a right to annual shareholder meetings and the right to call special shareholder meetings.
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Negotiated Shareholder Rights
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In addition to the voting rights and other basic shareholder rights, some shareholders receive additional rights in the form of a contractual shareholder agreement with the corporation. Shareholder agreement contracts can include definitions of specific voting rules, such as the right to vote by proxy, company employment agreements, where the shareholder is also an employee of the corporation, and management agreements giving the shareholder management responsibilities in the corporation.
Shareholder Disputes
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Despite the fact that shareholders have basic rights, minority shareholders can sometimes find their interests exploited by shareholders who have enough voting shares to overrule their votes. For example, a majority shareholder with controlling interest in the company may vote for a corporate policy designed to benefit him at the expense of other shareholders. As corporations have a fiduciary duty to all shareholders, minority shareholders can take the corporation to court if they believe that the majority shareholders are exploiting the interests of the minority shareholders.
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