Many California corporations have shareholders who hold a legal interest in the business. While business owners must protect the company’s interests, they must also respect and be conscious of their shareholders’ rights. An experienced corporate law attorney can help you meet the interests of both your business and shareholders.
A Shareholder’s Role
Shareholders and stockholders are persons who own stock in a company and, therefore, have a (limited) ownership interest in the business. In Delaware, stockholder is a term used for ownership interest in a business. In California, shareholder is a term used for ownership interest in a business.
As a general rule, shareholders and stockholders do not have the right to dictate the day-to-day management of the business. Their interests are protected through the Board of Directors. Shareholders have the right to elect directors of the board, and can hold directors accountable for any decisions.
A Shareholder’s Rights
In practice, both stockholders and shareholders have the same rights in a company. They are entitled to vote for directors, receive dividends, inspection of corporate records, and claim their share of residual assets upon the liquidation of a company. In order to protect these rights, shareholders are entitled to inspect the company’s financial records and sue the corporation for breach of fiduciary duty by its officers, directors, or managers. Specific rights and responsibilities of shareholders can be further detailed in the company’s bylaws, corporate charter, and other corporate documents. Because these documents impact shareholder rights, shareholders generally have the right to vote directly on any amendments made to them.
When a business is liquidated, its assets are distributed according to an order of priority. Creditors and bondholders are reimbursed before shareholders. Shareholders are then issued dividends according to the type of stock they own, with preferred shareholders receiving dividends before common stockholders.
In some businesses, shareholder activism becomes a problem for owners or directors whose opinions differ regarding the management of the business. A Board of Directors often acts as a buffer between the shareholders and the corporate officers. Effective communication can allow the Board to reconcile the conflicting opinions of shareholders and officers. Unfortunately, the Board can sometimes voice a third conflicting opinion or cause more internal dissentire in an already-tense situation. It is important to defuse such tensions as early as possible. All parties must clearly identify their needs and be creative in crafting solutions to balance the interests and goals of the business.
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