Minority shareholder is the ownernon-controlling interest in the authorized capital of the company. It can be represented as a legal entity, and one person. The non-controlling package does not allow its owner to participate in the management of the organization, for example, to elect members of the Board of Directors.
Since a shareholder with a small stake does notcan be a full participant in corporate governance, its interaction with the majority shareholders is difficult. Owners of controlling stakes may reduce the value of minority shareholders' securities by taking out assets to a third-party organization with which small shareholders are not connected in any way. To prevent such situations and to establish relationships between shareholders in general, in civilized countries, the rights of holders of non-controlling packages are established by law.
In the legislation of developed countriesprotection of minority shareholders against the forced sale of securities to owners of large packages at a lower price is provided in case the latter decide to buy all the shares. In most cases, the protection of small shareholders is to limit the ability of the majority shareholders and the Board of Directors to abuse their power. All the rules established by the laws are intended to empower minority shareholders and involve them in the management process.
Often the law provides minority shareholders so muchbig rights that they begin to resort to corporate blackmail, demanding the repurchase of their shares at an inflated price by threatening legal proceedings.
In the federal legislation are presentregulations protecting small shareholders. First of all, this protection implies the preservation of their independent, separate status in case of a merger or acquisition. During such processes, a minority shareholder may lose out due to a relative decrease in its share in the new structure. This leads to a decrease in its influence on governing bodies.
The laws provide for such measures:
The stability of the company and the transparency of its actionspositively affect the stock price and attractiveness for investors. Numerous court proceedings and criminal cases against managers and shareholders, violation of the law by persons who have a certain authority within the company, has the opposite effect.
If the minority shareholder or group ownsmore than 25% of the package and has interests that are different from the preferences of the majority, the adoption of particularly important decisions, for which 75% and more are needed, is difficult.
The most common type of corporateConflict called greenmail. This phenomenon is nothing but blackmail by a minority shareholder. It has many different manifestations and can seriously undermine stability within the company.
Greenmail means one minority shareholderor several minority shareholders, united in a group, begin to disrupt the adoption of all decisions that are important for the company. It also includes deliberate actions that cause companies to pay heavy fines. In addition, minority shareholders are able to derail the value of shares by various methods available to them.
Ultimately, the greenmail comes down to one oftwo goals: promoting self-interest and gaining power over the company, or forcing the majority shareholders to buy back shares from small holders at an unreasonably high price.
