Are you thinking about investing as a minority shareholder in a company? Perhaps you are thinking about taking on outside investors for your current company? What are your minority shareholder rights as an investor? What should you be concerned about as a majority shareholder?

The Minority Shareholder

Understandably, minority shareholders often are concerned that their rights and interests will be trampled by those of the majority shareholders. It seems that corporations appear to have a greater incentive to cater to the needs of their more substantial investors. However, in California, minority shareholders possess certain crucial rights that cannot be compromised by corporate bylaws or majority shareholders actions. One of the most valuable rights for shareholders is the right to access information about the corporation. In particular, shareholders of California corporations have rights to inspect two different sets of records: (I) record of shareholders; and (II) accounting books, records, and minuts of proceedings.

Inspection of the record of shareholders

Minority shareholders have the right to inspect a corporation’s record of shareholders. Those who hold either: (a) 5% of the shares; or (b) 1% of the shares and have filed a federal Schedule 14B relating to the election of directors, have an absolute right, on 5 business days’ notice, to both: (1) to inspect and copy the record of shareholders; and (2) to obtain a current list of the names, addressses and share holdings of the voting shareholders (Corp. C. 1600(a)(b)). Furthermore, any shareholder who does not qualify under either (a) or (b) above, with a written demand, has a right to access a corporation’s record of shareholders. BUT if and only if the acquisition of such records is directed towards an end deemed reasonably related to the holder’s interest (Corp. C. 1600 (c)).

Inspection of the books and records

Minority shareholders also have the valuable right to inspect accounting books, records, and minutes of proceedings. Inspection of said information is provided if and only if the acquisition of such information is directed towards an end deemed reasonably related to the holder’s interest (Corp. C. 1601 (a)).

These are important rights for all shareholders to keep in mind. Indeed, these rights may not be limited by either the bylaws or articles. If a lawful demand for inspection is refused without justification, the superior court can intervene and compel the corporation to forfeit the requested information. In some cases, the courts have exercised their power to award complaining shareholders with reasonable expenses, including attorneys’ fees. (Corp. C. 1600 (b)).

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

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