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Ask a Lawyer -- Corporations
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Brought to you by MedLawPlus.com®-- Corporate Bylaws and initial board of directors resolution Price: $14.99 (free trial) |
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Question: Does a 49% shareholder in an S corporation have any rights to profits, and should that shareholder receive 49% of all the corporate benefits ie; salary level equal to the majority shareholder Response: Does a 49% shareholder have a right to equal salary from the corporation as that received by the 51% shareholder? No. Does a 49% shareholder have a right to a job at all? No. Sorry these are the hard realities for minority shareholders. The rights of a minority shareholder in a closely held corporation are rather limited. That is why the value of stock in closely held corporations has very little value outside of the existing circle of shareholders. "A shareholder's voting rights are limited to electing directors and voting on certain actions which require a shareholders' vote. " Link. Aside from voting rights, minority shareholders have the right to inspect the books and records of the company. California Corporate Code Section 1601 (a). Also, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders. JONES v. H. F. AHMANSON & CO., 1 C3d 93 (Cal. S.Ct. 1969). Minority shareholders also have the right to proportional share of dividends declared. There are two problems with capitalizing on this right. First, in closely held corporations, it is common for the majority (if not all) of the profits of the corporation to be paid out in salary as opposed to dividends. Secondly, a corporation has the right to retain profits (rather than paying them in dividends) to use for future business needs or accrue a reserve for known business risks. Submitted: 02/20/2008; Kevin, California Response: 02/26/2008; JJR Add A Comment |
Ask a Lawyer, Corporations Archives
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