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What Rights Do I Have As A Shareholder In A Private Company?

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  • Posted on: May 7 2018

A shareholder is a part owner of a company. While many people understand this very basic concept in business matters, they may not realize what kinds of rights and responsibilities come along with being a shareholder.

Shareholders in private companies generally have the same rights as they would in a public company, but they may be enforced differently. A New York business lawyer can help you understand the difference and even assert your rights should you feel that you are being treated unfairly as a part owner of a private company.

Your Rights in a Publicly Traded Company

Your rights will be affected based on whether you own stock in a public or private company. A public company is traded on a public exchange, such as the New York Stock Exchange. When you are a shareholder, you are also called a “stockholder.” As a stockholder, you are often one of the hundreds, if not thousands, of part owners.

Your major role as a stockholder is to provide funds to the company through your purchase of stock. While you can participate in the governance of the company, most public investors choose not to be involved.  

Nonetheless, as a shareholder in a publicly traded company, you can:

  • Share in the profits of the company based on your percentage of ownership (in the form of dividends or other distributions)
  • Participate in shareholder meetings
  • Purchase more shares or sell your shares
  • Vote in annual or general meetings
  • Sue for wrongful acts of the board of directors or another managing body

Shareholders in a publicly traded company may not have much of a voice because their percentage of ownership in the company is relatively small.

Shareholders’ Rights in Private Companies

A shareholder in a private company often has much more control than those who own a portion of a publicly traded company. Private companies are more likely to be considered family companies or closely held businesses. They have far fewer shareholders or investors, but those shareholders are much more likely to assert their rights as a shareholder.

To attract investors, private companies will often give shareholders more control or involvement in the company. Shareholders will often play a significant role in the management of the company.

Shareholders in private companies have three major rights:

  1. Access to information
  2. Voting rights
  3. Rights related to attending and participating in meetings

While these rights are similar to publicly traded companies, they are different for one significant reason: there are usually far may be fewer voices at the meetings. That means that each opinion or view is heard louder compared to publicly traded companies.

Asserting Your Rights as a Shareholder

In some situations, your shareholder rights may be disregarded in a private company. Depriving you of access to information is one of the most common complaints. If you feel that you are being mistreated as a shareholder, you may have legal options.  Schedule a consult with the experienced attorneys at Freiberger Haber LLP to discuss your business issues today.

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