Any company that issues its shares on the stock market has a large number of co-owners, i.e. those who acquired these shares. Often, public companies want to start trading their shares on the stock exchange, for which it is necessary to go through the listing procedure. To get on the quotation lists, business needs to be as transparent as possible. All the information established by law will be published without fail, so that those who are going to purchase shares of the company can familiarize themselves with all the details.
In Russian legislation there is a general concept of "shareholder". However, a certain internal gradation is often used, which was taken from Western practice, where minority shareholders and majorities so organically took root. The first one is an ordinary ordinary shareholder who bought a certain part of the company’s shares, very insignificant. Most minority shareholders do not plan to dispose of shares in the long term. They are driven by the desire to sell them as soon as they grow in value. A person who has bought one share is already becoming a minority shareholder. The majority shareholder is considered a shareholder who has concentrated a large block of shares in his hands. He has a significant role in the life of the organization.
These shareholders have directly opposite interests and goals. If majority shareholders want to increase the value of shares, pay minimum dividends, and, as a result, increase their annual premiums, minority shareholders are worried about the opposite. They seek to profit from the growth of dividend payments, and the increase in the number of bonuses and bonuses of the company's management prevents this.
Let us examine in more detail the question of who are minority shareholders and majority shareholders? How can their conflict be resolved?
Type of securities held by shareholders
The right to determine certain issues in the life of a company, to participate in shareholders meetings and general meetings (which are the organization’s highest management body) depends on the type of securities that belong to shareholders. For example, at general meetings, issues such as the method of distributing dividends, the struggle to control the company’s activities are being discussed, decisions are being made, as a result of which the market price of shares, and therefore the value of shares of shareholders, can change significantly.
What are the rights of minority shareholders?
Those who own preferred shares are included in a separate group, because the amount of their dividends is fixed by the charter of the business company. It does not depend on the results of the company. Their participation in the meeting is unacceptable by law, all of which means that their interests are completely different from the interests of owners of ordinary blocks of shares.
These shareholders differ in the weight of their block of shares in their total value. Simply put, it is precisely the amount of securities in possession that will be responsible for this.
Majorities
Majorities are those who own a block of shares that allows them to independently influence decisions made at a general meeting. Minority shareholders of a bank, for example, own such a small proportion of shares that their votes have no weight in the general meeting. If they jointly and purposefully advance their position on issues to be resolved, they will be heard.
Controlling packages are mainly in the hands of the founders of companies. Also, institutional (or private strategic) investors own significant shares.Usually, the vote in the general meeting gives 5% of all shares, but as regards the blue chip companies (that is, the most reliable and quoted ones), it will not be possible to quietly buy up the required number of their shares.
Minorities
Minority shareholders are those who own a smaller stake than 5%. Most often these are either portfolio investors, or brokers, stock speculators. If the former rely on income in the form of dividends (and buy shares for the long term), then the latter most often rely on income from the exchange rate difference of shares, buying and selling them at short intervals. Therefore, their non-participation in general meetings of the issuing organization is quite natural. But minority shareholders of the first type are very interested in income from the shares of the company.
What is the conflict between majority and minority shareholders?
The main reason for the dispute is the size of dividends. Minority shareholders are interested in their maximum size, while the interests of the majority are more strategic. They seek to direct most of these funds to business development or to solving some other issues.
Interests of majority and minority shareholders
The minority shareholder, as the owner of a non-controlling interest, can be both a legal entity and an individual. Since minority shareholders are not full participants in the management of the company, their interaction with majority shareholders is difficult. At the same time, owners of controlling stakes may reduce the value of securities held by minority shareholders, for example, by transferring assets in favor of a third-party organization (not affiliated with small shareholders).
What does the law say?
In order to prevent such situations and to establish relations between these two types of shareholders, in a number of countries there are laws that determine the rights of owners of non-controlling interests. For example, the federal legislation of the Russian Federation spells out rules that protect small shareholders. First of all, it is maintaining in their favor an independent status in the event of a takeover or merger. Indeed, because of these processes, the minority stake may lose, since its share in the new structure will most likely be reduced, which will lead to a decrease in its level of influence on the bodies managing the company.
Protecting the rights of minority shareholders
The law provides for the following protective measures. To make a decision, it takes 75% (not 50%) of the vote, and sometimes this threshold rises higher. For example, in order to amend the charter of the organization, close the company, determine the structure and volume of the forthcoming issue, etc., it is necessary that 75% of the shareholders of the company vote for this. Board members are elected by cumulative voting. For example, a shareholder owning five percent of the shares has the right to elect five percent of the members of the Board of Directors. If someone bought from thirty to ninety-five percent of the total set of issued securities, then he is obliged to give other owners of shares of the same company the right to sell them at a market price or higher. This is also a kind of protection for minority shareholders.
If a shareholder owns one percent of the shares (or more), then he already has the right to speak in court on behalf of the organization against its management if the decisions of the directors caused a loss to the shareholders. When a person owns a quarter of all issued securities (or more), then he has the right to access accounting documents, minutes of meetings, etc.
The minority shareholders of Roskommunenergo own 0.7233% of the vote in the total number of voting shares of the company.
The consequences of conflicts between shareholders
The stock price is positively influenced by such internal factors as the stability of the issuing company and its transparency. If the company is mired in legal proceedings, and criminal cases are instituted against managers, then this will bring down its quotes.
Now imagine the situation that a person or group of persons owns more than 25% of all shares, and their interests are very different from the interests of other shareholders. In this case, it will be difficult or impossible to make decisions that require 75% of the vote.
The most destructive of all types of conflicts even got its name - greenmail. In this case, one or several minority shareholders, united, begin to disrupt the adoption of any decisions, help the company receive as many fines as possible, and ultimately bring down its quotes. In general, the law today is powerless against such schemes.