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Clearly, no other person will purchase the minority interest, hence the minority Shareholder remains in a powerless circumstance regardless of the ownership of stock. Assuming  View Details  is Sub S in tax status (in which case each investor is taxed on corporate profits personally) then the situation for the minority Investor can be desperate considering that the bulk Shareholder can reward him or herself enough to pay the taxes, however not declare any dividends and the minority Shareholder is in the difficult situation of paying taxes on cash he or she never ever even gets! (Therefore if a Sub S business earns $100,000 in net profit and you own thirty percent of the stock, you need to pay taxes on $30,000.

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If the company states no dividend, you still should pay that tax.) The above "capture play" on a minority Shareholder is a very typical maneuver in business battles and eventually requires the minority investor to offer his/her interest at any cost to the majority Investor in an effort to prevent economic mess up.

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Further, under the guidelines of cumulative voting, a minority shareholder with a specific amount of stock can guarantee him or herself of having the ability to elect a minority on a Board of Directors (at least elect one out of 3) even if control still remains in the hands of the bulk shareholders.

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If you are predestined to end up being a minority Shareholder, you should secure yourself in other methods: either by creating an unique type of stock structure permitting particular veto rights or by acquiring legal rights in a different written contract, either of employment, or in terms of who will serve on the Board or serve as an Officer.

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It is hence at the developmental phase of the corporation where minority investors need to either look for some type of increased share holdings or legal defense, as discussed at the end of this short article. The 2 methods to protect minority rights are Stock Structure (and related voting arrangements) and Employment Contracts.