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Minority shareholder protections
Protection of minority shareholder rights is usually covered in the shareholders agreement through one or more of the following mechanisms:
1) The right to be involved in all major decisions regarding the company and to hold a veto where applicable;
2) The right to protect their share value and to prevent any dilution in the future of their share capital;
3) The right to participate in the management of the company through board representation, either by electing at least one director to the board or having an observer role;
4) The right to the fair and proper distribution of profits; and
5) Tag-along and drag-along rights, as an exit strategy.
The benefit of protecting minority shareholder rights is that it strengthens the mechanisms for ensuring good governance within the organisation and prevents undue influence by majority shareholders.
Minority shareholders can help promote good governance by exercising their right to access financial records and management accounts and by using their power of veto to block business sales and mergers, expenditure above prescribed limits, winding up or voluntary liquidation, or large scale investment. Minority shareholder protections can also prevent dilution of their shares by having the right to subscribe for shares under any new share issue.
1) The right to be involved in all major decisions regarding the company and to hold a veto where applicable;
2) The right to protect their share value and to prevent any dilution in the future of their share capital;
3) The right to participate in the management of the company through board representation, either by electing at least one director to the board or having an observer role;
4) The right to the fair and proper distribution of profits; and
5) Tag-along and drag-along rights, as an exit strategy.
The benefit of protecting minority shareholder rights is that it strengthens the mechanisms for ensuring good governance within the organisation and prevents undue influence by majority shareholders.
Minority shareholders can help promote good governance by exercising their right to access financial records and management accounts and by using their power of veto to block business sales and mergers, expenditure above prescribed limits, winding up or voluntary liquidation, or large scale investment. Minority shareholder protections can also prevent dilution of their shares by having the right to subscribe for shares under any new share issue.