What Are Shareholders' Duties?

Written by nikolay danev
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What Are Shareholders' Duties?
As of March 2011, Bill Gates is a majority shareholder in Microsoft. (Mark Wilson/Getty Images News/Getty Images)

Shareholders are the individuals who, along with the directors of a company, wield power in a business. Shareholders perform certain implied duties. They obtain fiduciary duties only under specific circumstances. Many company directors and company members want a shareholder who controls the majority of shares in a company to take on legally required duties.

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The general duties of every shareholder are presumed and not necessarily required by the law of equity and trust. Since shareholders are mere investors who obtain benefit from investing money in an organisation, they are not required to exercise any general duties. However, since they have financial involvement in an organisation, shareholders need to express at least approval or disagreement with the current affairs of a company. This is the main reason for shareholders' meetings.

Majority Shareholders

Majority shareholders are the investors who have obtained the majority of stocks in a company. Hence, the majority shareholder or group of shareholders posses decision-making and organizational power over the company. The American law on trust and equity establishes that this is when shareholders have certain fiduciary duties for the organisation. Such a duty is that the majority stock holders need to be loyal toward other investors and employees of the company. They have to act in a way that would not devalue the investments of other individuals and would not disturb the financial stability of the organisation.

Liabilities For Majority Shareholders

While the general duties of shareholders are presumed and thus cannot be questioned in a court of law, the fiduciary duties of majority shareholders are a subject of legal considerations, according to the American law. The U.S. courts have given the minority shareholders the power to challenge any decision made by the major investors in a company. Thus the minority stock owners can hold the decision-makers of an organisation accountable for their actions if they are not satisfied with the objectives and the results achieved by the majority shareholders.

Knowing Receipt and Assistance

All shareholders in a company are under the duty to act in accordance with the well-being of the organisation they have invested in. This is the reason why if a fraud is committed and they have had any suspicions or participation in such an act, they will be held liable for compensation against the claimants. This is called knowing receipt and assistance. Thus the shareholders cannot receive funds or assist in the commitment of financial deceit if they have any knowledge that the money in question was obtained in a breach of trust toward the other investors in a company.

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