If you are a minority shareholder you may feel a lack of control over corporate matters because majority shareholders, well, hold the majority of the voting rights. Certain shareholder agreements can help alleviate this lack of control and provide you with greater voting power.
Simply put, a shareholder agreement is a private contract between two or more shareholders of a corporation that supplements the corporation’s governing statute(s) and constating documents (i.e. articles of incorporation and by-laws). A shareholder agreement, particularly where it is not a unanimous shareholder agreement, should never contradict or conflict in any way with the corporation’s constating documents or governing statute(s). Instead, these documents should all speak to each other and form a consistent framework for effective corporate governance and operation.
A shareholder agreement codifies your rights and obligations as a shareholder. These agreements may be simple documents that address a single matter, or they may be comprehensive documents that address a variety of matters.
Increasing Your Voting Power
Voting rights are important to all shareholders, but especially to minority shareholders. Since majority shareholders typically hold decision making power, minority shareholders may be faced with unwanted results. As a minority shareholder, you can increase your voting power by entering into either of the following:
- a Voting Agreement (also known as a Pooling Agreement); or
- a Voting Trust Agreement.
A Voting Trust Agreement is an agreement where two or more shareholders transfer their shares to an agreed upon voting trustee. The voting trustee then votes on behalf of the shareholders according to the terms and conditions of the voting trust agreement.
A Voting Agreement is an agreement where two or more shareholders agree to vote their shares a certain way, essentially as a voting-block, for a single matter or multiple matters moving forward.
By entering into either a voting agreement or a voting trust agreement, minority shareholders are able to increase their voting power by creating a voting-block, and ultimately obtain greater control over decisions that require shareholder approval.
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