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The most common remedy sought is for the shares of the petitioning shareholder to be bought by other members of the company or even by the company itself. Allotting further shares in the company for the improper purpose of diluting a minority shareholder’s shareholding is an obvious example of unfair prejudice.
Share dilution is when a company issues additional stock, reducing the ownership proportion of a current shareholder. Shares can be diluted through a conversion by holders of optionable securities, secondary offerings to raise additional capital, or offering new shares in exchange for acquisitions or services.
Can a board of directors remove a majority shareholder?
Can the majority shareholder be removed? According to Lankford Law Firm, although it may be somewhat difficult, removing a majority shareholder is possible – for instance, if they have violated the original terms of the shareholders’ agreement of the company’s bylaws.
How do you protect against dilution of shares?
How to avoid share dilution
- Issuing options over a specific individual’s shares.
- Issuing options over treasury shares.
- Issuing unapproved options.
- Creating bespoke Articles of Association.
What is anti-dilution clause?
Anti-dilution provisions are clauses built into convertible preferred stocks and some options to help shield investors from their investment potentially losing value. Anti-dilution provisions are also referred to as anti-dilution clauses, subscription rights, subscription privileges, or preemptive rights.
In this post we address the diluting of a minority shareholder’s share value by issuing new shares. Dilution of shares occurs when majority shareholders create new shares in the company to be controlled by themselves. This diminishes the minority shareholder’s proportionate voting rights and earnings.
Can a board of directors squeeze out a minority shareholder?
Typically, the board of directors in closely-held companies is comprised of the majority shareholders. As a result, majority holders – who are also the board of directors – can create a power imbalance in the company in order to eventually squeeze out the minority shareholder.
What happens when the majority shareholder controls the Board of directors?
As a result, majority holders – who are also the board of directors – can create a power imbalance in the company in order to eventually squeeze out the minority shareholder. When shareholders who own the majority of the company’s shares control the board of directors, they can influence any decisions made by the board.
As often is the case, these new shares will be issued at the majority shareholders command for significantly less than market value. As the majority shareholders control the board of directors and, through that, the power to issue new shares, a minority shareholder is constantly at risk from this method of squeeze-out.