DiSabatino CPA Blog

Mike DiSabatino CPA

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Minority Shareholder Rights

Often, a minority shareholder is completely excluded from the management of the company.  Lacking the votes to acquire a position as a corporate officer or director, a minority shareholder may even be excluded from the information necessary to detect abusive actions by the majority or to evaluate the performance of the company and the value of its stock.  Therefore, the right to obtain financial information and other data about the company’s business can be invaluable.

Document Inspection
Fortunately, statutes in virtually all states grant minority shareholders the right to inspect the books and records of the corporation upon reasonable notice.  Such right is conditioned upon the demonstration of a proper purpose for such inspection and may also depend upon having a minimum percentage of ownership.  The nature of the records that can be inspected varies from state to state, but usually includes all tax returns, balance sheets, profit and loss statements, general ledgers and other summary accounting documents.  Sometimes, underlying documents such as bank statements and cancelled checks can be examined and copied as well.  Documents relating to transactions between the company and control persons, including employment agreements, contracts of sale, leases, etc. are usually reviewable at the request of the minority.  Finally, board minutes and resolutions, bylaws, stock ledgers and similar documents are universally reviewable.

A shareholder document inspection can be an invaluable right for several reasons.  First, it allows a minority shareholder to discover if the company is being mismanaged without the expense or risk of filing a shareholder lawsuit.  A shareholder inspection also serves notice to the majority that a minority shareholder is watching their actions closely.  Often, such an inspection alone can make corporate officers “clean up their act” or stir the majority to offer the minority a “buy-out.”

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