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What do businesses owe their shareholders?

On Behalf of | Aug 9, 2023 | Business Litigation |

Shareholders help to invest the funds that keep a business operational and profitable. Their contributions can help spur company growth and can play a major role in how the organization develops. Shareholders invest by purchasing company stock and then by potentially playing a role in the development and operations of the organization.

There can be a bit of tension between the entrenched management or prior owners of the business and shareholders in some circumstances that may lead to misconduct on the part of the business. When this happens, shareholders may feel compelled to ask what exactly the organization owes them.

Transparency and honesty

An organization should thoroughly and accurately disclose certain financial information to shareholders. It should also make certain operational records available, when feasible, for shareholders to review. Such information is crucial if shareholders are to make informed decisions about company matters. Those operating the organization have a fiduciary duty to shareholders to act in their best interest, which typically means seeking to maintain or improve the business’s overall value and profit levels. Neither the organization itself nor its leadership should act in a way that would undermine the rights of shareholders.

A say in long-term operations

Shareholders often have a right to vote at meetings regarding the future of the company. They can help hire new executives or decide whether the company will diversify its operations. They can choose to restructure the company or refocus what it does. They can shape the future of the company even if they don’t usually have any direct control over its day-to-day operations. Organizations should not seek to block shareholders from voting and influencing the direction of the company nor prevent them from attending meetings where they discuss the company’s future.

A share of company profits

Shareholders often receive compensation for their investment in the organization when the company proves financially successful. Shareholders should receive a portion of the company’s profits in accordance with their agreement as an investor in the company.

Unfortunately, shareholders sometimes find themselves facing an uphill battle to receive the respect and share of profits that they deserve. Learning more about a company’s fiduciary duty to its shareholders may help those that invest in a company make better use of their rights.