Your desire to see a return on your investments may have driven you to buy shares in a specific business. On the other hand, you may have an interest in the company’s operations. As a shareholder, you should have some influence over the organization and stand to profit from its success.
However, minority shareholders often have a difficult time influencing the culture and direction of a company, especially in closely-held organizations. Sometimes, the majority shareholders of an organization will intentionally try to freeze out smaller investors.
They will prevent them from having a say in the company’s operations by overpowering them at voting sessions. They may even deny minority shareholders their dividends to try to force them to sell. Fighting back may be crucial to protecting your investment and your interest in the company.
Freeze outs often cross ethical and legal boundaries
The exact rights you have as a minority shareholder depend on the organization in which you invested and numerous other factors. It is common for companies to rethink a decision about having public investors involved in decision-making or profiting from the organization’s success.
Even when the majority shareholders want to buy back the interest of other investors, they should do so reasonably and fairly. For some minority shareholders, challenging the actions involved in the freeze out in court may be necessary. Other times, the best approach to protect someone’s finances may involve negotiating a buyout with favorable terms. Those facing a freeze out need to recognize the situation and assert themselves or risk losing their influence or financial interest in the company.
Complex business disputes can be difficult to navigate
Especially when the shareholders seeking to reduce your influence have exerted a coordinated effort to deprive you of your dividends or force you to sell your interest in the company, you may need someone helping you as you advocate for your rights.
From exploring whether you are in an actionable situation to assertively negotiating for appropriate terms in a sales scenario, there are many different ways for you to protect yourself when you face freeze out as a minority shareholder. Preparing for the unique challenges of business investment and management will help those buying into a company or those who currently own a minority interest in an organization.