Shareholders hold significant power within a business, especially when they own a considerable portion of the company’s shares. While many shareholders act in the best interests of the company, some may attempt to exploit their position for personal gain.
To ensure the long-term success of your company, you need to understand how shareholders might take advantage of the business. You can take steps to protect your interests by familiarizing yourself with malicious tactics shareholders might use.
1. Gaining control over the company
A shareholder with a significant stake may attempt to gain control over the company by influencing major decisions. This could include voting themselves or their allies into key positions within the company, such as on the board of directors. Once in control, they might prioritize their interests over the company’s well-being. A shareholder agreement can outline specific voting rights that prevent unfair shareholder transactions.
2. Diluting ownership
Another way a shareholder might take advantage of a business is by diluting the ownership of other shareholders. This can happen through the issuing of new shares, which reduces the percentage of ownership held by existing shareholders. If done without proper consent or care, it can weaken the influence of other shareholders and shift control to the one who orchestrated the dilution.
3. Withholding vital information
Shareholders with access to inside information might attempt to withhold or selectively share this information to gain an advantage over others. By controlling the flow of information, they could make decisions that benefit them personally while leaving other shareholders at a disadvantage. A well-written shareholder agreement can help ensure transparency and equal access to critical business data.
Shareholders certainly play an important role in a business. However, there are risks that can arise when individuals seek to exploit their position. Drafting a comprehensive shareholder agreement when starting a corporation can create an effective safeguard.