Business Litigation Lawyers for Shareholder and Equity Owner Rights
Shareholder and Equity Owner
Rights Team Lead
Contact Nick directlyCorporate shareholders and other equity owners have important legal rights that they can invoke to protect their interests and further their financial goals. However, many individuals who buy shares in a company do not have a full understanding of what their ownership allows them to do.
The business litigation lawyers at Oberheiden P.C. have helped corporations resolve pressing shareholder disputes, as well as shareholders who have wanted to use their ownership leverage over a corporate entity to their financial benefit or to prosecute corporate wrongdoing. With our legal representation, many of our clients have obtained the favorable results that they have sought and have protected their interests in a complex and sensitive corporate dispute.
The 3 Types of Corporate Stakeholders
It is important to recall that, generally, in a corporation there are three types of stakeholders:
- Individuals who own common stock in the company,
- Individuals who own preferred stock in the company, and
- Individuals who hold bonds with the company.
Bondholders are unique among these three because their stake in the company is through a debt. They have bought a bond with the company and stand to collect the principle and interest on that purchase. While bondholders are stakeholders, and while their creditor’s right to collect from the company is prioritized, their stake does not come with ownership or equity rights in the corporation.
Ownership or equity rights in a corporation are only conferred through stock ownership – whether that be common stock or preferred stock. Not all companies issue preferred stock, which gives these owners priority when dividends are issued or if the company goes bankrupt. However, preferred stockholders also often go without voting rights.
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If you have bought a share in a corporation, you own a small portion of that company. You benefit when it grows, but you also feel financial pain when it falters.
In addition to having financial ties to the company, though, you also have the legal rights that come with being a part-owner of a publically traded corporation. Some of the most important of those rights are:
- Voting rights
- Right to corporate information
- Right to dissent and transfer ownership
- Rights to sue the company for wrongful acts
While shareholders have other rights, these four are among the most common to lead to business litigation.
The Right to Vote
Perhaps the most important equity right that shareholders have in a corporation is the right to vote. Shareholders can use their right to vote on numerous major corporate issues, including:
- Who gets elected to the company’s board of directors
- Proposed fundamental changes to the company
- The sale of corporate assets
- Whether to accept a merger that would acquire or subsume the corporation
- Voluntary dissolutions
- Changes to the company’s governing documents or bylaws
Some of these issues are incredibly contentious. When millions of dollars are at stake in the largest companies, the results of a vote can lead to litigation no matter how it turns out.
The Right to Corporate Information
All shareholders who have equity ownership in a corporation, no matter who small, have the right to inspect corporate documents and information. This includes:
- Corporate books and records
- Meeting minutes
- Company bylaws and other governance documents
For activist investors, this access to information is the entire point behind their purchase of stock. Armed with the right to inspect corporate documents and information that might not be available to the public, they can better direct their actions.
Even for investors who are purely financially motivated, though, the access to some internal corporate documentation is a hugely important right to have. They can use that information to detect corporate wrongdoing that is siphoning off funds and preventing it from benefiting equity owners and shareholders like themselves, often to their financial detriment.
The Right to Dissent and Transfer Ownership
One of the biggest perks about owning securities and shares in a company, as opposed to other assets like real estate, is that transferring the ownership of a security is easy: Stocks are extremely liquid, so investors who want to divest their shares are generally able to do so right away. Owners of other assets, like real estate, can take years to sell their stakes. In that time, the value of their assets could have plummeted through little fault of their own.
This is an especially important aspect of owning equity in a company, as the value of that equity can fluctuate wildly in the span of only a couple of hours and, in the worst circumstances, can crash with almost no notice.
The right to transfer or sell ownership in the corporation plays into the right to dissent. Shareholders have the right to vote on important corporate issues. The minority of shareholders who lose a vote on a critical issue, like the decision to merge with another company, can invoke their dissenters’ rights. These rights entitle the shareholders who voted against the resolution to receive fair market value for their shares in exchange for their sale and exit from the company.
Invoking dissenters’ rights frequently leads to business litigation, though, as it triggers an appraisal of the shares at issue. This appraisal is often disputed by both sides to the transaction.
The Right to Sue the Company for Wrongful Acts
The shareholders of a corporation are the owners of that company, with the board of directors and the chief executive officer (CEO) serving in their interests and acting on their behalf to maximize the value of their shares. When those officers act in ways that harm their investors and shareholders, it can amount to financial misconduct that exposes the corporation to legal liability. In other cases, shareholders can file a shareholder derivative lawsuit against the board of directors or corporate officers themselves in an attempt to hold them accountable for their misconduct.
Like most business litigation disputes, shareholder issues are rarely resolved in a trial. Both the shareholders and the corporation generally want to avoid the expense and the publicity of a trial and the resulting court documents, which are publicly available.
Six of the most common out-of-court resolutions that come from shareholder allegations are:
- Mediation
- Arbitration
- Negotiated settlement
- The removal of the director or other corporate officer at issue
- The purchase of the shareholders’ shares, essentially buying them out of the company and ending their claims against it
- Corporate dissolution
The vast majority of shareholder disputes can be negotiated in a way that the owners and the corporation find to be agreeable.
When shareholders sue the corporation or its officers for misconduct, their claims generally take the form of one of the following:
- Breach of fiduciary duty
- Misappropriation of funds
- Embezzlement
- Conflicts of interest
- Breaching the corporate bylaws
- General mismanagement
Some of these allegations claim that the corporate officers are committing financial crimes to the detriment of shareholders and equity owners of the company. These claims are serious. Federal law enforcement agencies frequently monitor them to see what evidence of wrongdoing gets discovered. If there are signs of criminality in the evidence discovered by the shareholders, criminal charges may soon follow.
What Does it Mean that Oberheiden P.C. is a “National Law Firm”?
Oberheiden P.C. is a national law firm. While our main offices are located in Dallas and Houston, Texas, we have other offices in nearly every major American city. All of these offices are filled with senior level attorneys with years of experience representing shareholders and corporations in sensitive corporate negotiations that have millions of dollars on the line.
Because that is something that we prefer to let our past clients say about our firm. While we have a roster full of extremely experienced corporate lawyers, numerous skilled investigators to help them gather evidence, and a long track record of successes both inside and outside of the courtroom, we strongly believe that statements like these are better heard from our prior clients. Many of them have left glowing testimonials about our legal advice and professional guidance through some extremely sensitive and contentious corporate issues.
At Oberheiden P.C., we think that these reviews suffice, and prefer to let them stand for their own while we focus on providing experienced legal work for our current clientele.
Business Litigation Lawyers at the National Law Firm Oberheiden P.C.
Shareholders and equity owners have important legal rights that exist to protect them from financial misconduct and fraudulent activity by corporate officers. The business litigation lawyers at the national law firm Oberheiden P.C. have extensive experience representing shareholders who want to invoke those rights and the corporations who find themselves facing the ire of their stakeholders and equity owners.
Call the business litigation attorneys at Oberheiden P.C. today at (888) 680-1745 or contact them online today.