- Minority shareholders usually do not have the voting power to guaranty a spot on the board of directors. A shareholder who is not a director has limited rights to information about the operations of the corporation and no voice in decision-making or ability to protect himself/herself from oppressive conduct.
- One way to address oppressive conduct is to provide in a shareholder agreement that some or all of the shareholders must also be directors, or to give certain shareholders or groups of shareholders the right to appoint or elect a director of their choice. A guaranteed spot on the board of directors protects a minority’s interest as a voice in the corporation.
- In a typical squeeze-out scenario, a minority shareholder who is on the board is usually removed.
Unfortunately, most closely-held corporations rarely operate through formal board meetings, so the right to be a director in a small corporation may be more symbolic than real. Moreover, a minority position on a board of directors is hardly more useful than a minority position as a shareholder. The minority member of the board will be ignored and always outvoted, but at least they will be informed of ongoing company activities and decisions. A position as a director does not equate to the right of continued employment or salary. Therefore, even with a seat on the board of directors, minorities may still be squeezed out or frozen out.
To discuss your NJ shareholder matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney