Protecting Your Business

What are your duties to your shareholders?

On Behalf of | Feb 15, 2023 | Business Litigation |

Owning and operating a business can come with many responsibilities. Perhaps when you started your business, you were able to focus primarily on your client and customers, ensuring that you could meet their needs.

Whether you gained shareholders because your business was growing or because you needed a financial boost to get your company going, adding shareholders can mean a shift in your priorities.

Here’s what you should know about your duties to your shareholders.

Types of shareholders

Your shareholders believe in what you are doing with your business and make a financial investment. Once they make their investment, they expect to be able to help you make decisions that will support you as either equity shareholders or preference shareholders.

While both types of shareholders have an interest in the company, an equity shareholder will typically have voting rights and can take action on matters that could harm the business; preference shareholders have priority for profit distribution and may have limited voting rights.

Knowing your shareholder’s rights

When a shareholder chooses to support your business, they have certain expectations. While they believe in what you are doing, they will also expect a share of the profits, influence or both.

In some cases, sharing control over your business with your shareholders can be difficult. However, their voting rights can allow them to guide some elements of your company and decision-making in general.

Although it can be frustrating to fulfill duties to your shareholders, their support can mean you can have the investments you need to move your business forward. However, we recommend that you speak with an attorney experienced in shareholder issues before taking on new shareholders or investments.