Texas Business Attorneys

Shareholder Rights

A shareholder is defined as any person or entity which holds one or more shares of stock in a company. A corporation, for example, is collectively owned by its shareholders, not by its employees. The board of directors of such a corporation is bound by a fiduciary duty, the highest legal obligation, towards its shareholders, and is required to act in the best interests of the shareholders when running the corporation.

Shareholders are given certain rights and privileges depending on the type and amount of stock they hold. In general, the more shares of stock a person or entity owns, the more influence they have over the company. Though shareholders are rarely involved in the day-to-day operations of a company or corporation, they can exert their influence on the company through several channels.

For example, in most cases, the members of the board of directors are elected by the shareholders, in much the same way that US citizens elect the president or members of Congress. Shareholders may also propose resolutions, which are typically non-binding agreements used to force the board of directors to undertake an action that the board may dislike. The power of a shareholder’s vote is usually determined by the amount of stock they hold; the one share, one vote setup is a very common one.

Of course, shareholders are also entitled to share in the profits of the company and to company assets in the case of a liquidation. Depending on the corporation’s bylaws, existing shareholders may also have the right to buy new shares of stock before they are made available to the general public, a practice known as “pre-emptive rights.” This practice allows existing shareholders to retain control of a fixed percentage of the corporation’s stock. For example, a shareholder who owns 20% of a company’s existing stock might be allowed to purchase up to 20% of any new stock issued by the company before public investors are allowed to do so.

Need legal advice regarding corporate or business law? If so, contact an experienced Austin business lawyer from Slater & Kennon by calling 512-472-2431 today.