What Are My Rights as a Shareholder in a Private Company?

The specific shareholder rights available to you as a shareholder in a private company will vary based on several factors, including the types, or classes, of stock offered by the corporation. Generally, there are two different classes of stock — common stock and preferred stock. Each class of stock comes with a particular set of rights and privileges, which are at least partially determined by the shareholder agreement. 

A shareholder is an individual who owns one or more shares of a company. When you purchase stock in a private company, your shares come with a set of particular rights. For example, shareholders are entitled to financial dividends. The company will pay out these dividends in proportion to the number of shares each investor owns. In addition, shareholders have other privileges that come with their ownership status, such as voting rights. 

Some common rights that are granted to shareholders include:

  • The right to vote on important business decisions
  • The right to a portion of the corporation’s assets
  • The right to transfer ownership
  • The rights to receive dividends
  • The rights to inspect corporate books
  • The right to sue the company for its wrongful acts

Can a Shareholder Be Forced To Sell Shares?

Usually, no. In most situations, a shareholder cannot be forced to sell shares, since they have an ownership interest in the corporation by owning stock. However, under specific circumstances, shareholders can be forced to sell their shares against their will.

The two most common scenarios where shareholders can be forced to sell shares are takeovers and when the shareholder agreement allows for forced sales.


When one corporation buys out another through a stock-based acquisition plan, the purchaser will usually want to obtain 100% ownership of the company they are acquiring. Corporate law usually lets the purchaser gain full ownership of the business with a majority vote, even if minority shareholders oppose the acquisition. 

The percentage of the shareholder vote required to approve an acquisition depends on the company’s articles of incorporation. While many corporations call for a simple majority, other businesses might require a supermajority ranging from two-thirds to even 90% of existing shares to be voted in favor of the takeover.

Shareholder Agreements

A shareholder agreement is a contract between the shareholders of a company that outlines their rights and obligations in regard to the ownership of the business. The agreement should always cover what happens if there is disagreement among shareholders about major decisions, such as mergers and acquisitions, and some may allow for forced sales of shares in potentially problematic situations.

As an example, in a private company, the transfer of share ownership can be problematic, particularly if a shareholder attempts to sell or pass their shares to someone outside of the company. For this reason, a shareholder agreement might give the corporation the right of first refusal to purchase back shares upon an individual’s death or retirement. Shareholder agreements might also require forced sales due to mergers or changes in leadership.

Can Directors Make Decisions Without Shareholders?

Yes, directors can make most decisions without shareholder approval.

While ownership gives shareholders the right to vote on certain important issues, such as the appointment of directors and amendments to the corporate bylaws, they typically are not included in the everyday management of the business. As the managers of the company, the directors have broad discretion to make business decisions on the corporation’s behalf, regardless of whether the shareholders agree with the actions they take.

However, a few important decisions require shareholder approval, such as:

  • Appointing and removing directors and auditors
  • Modifying the corporation’s articles of association
  • Declaring dividends
  • Adopting annual accounts

Shareholders may also be to influence the board’s business decisions by exerting pressure on directors and management. If shareholders express their disapproval of a particular course of action, the board members may reconsider their choice or seek an alternate way of handling the situation. This is particularly true with smaller private companies where the board and the shareholders work side-by-side on a daily basis.

Have Questions?