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Let's say Alice and Bob start a company. Alice owns 90% of said company, and Bob the remaining 10%. One day Alice decides to start destroying shareholder value, viz. by throwing all the company's expensive equipment into the trash. Can Bob do anything to stop her, or does Alice have overriding powers since she owns 90% of the company? Phased alternatively, I'm wondering what Alice's 90% voting share actually means. Can she simply outvote Bob on everything related to the company, even if it's patently nonsensical like the above?

I have no specific jurisdiction in mind.

Allure
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3 Answers3

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A shareholder has no right to deal with any company property

Only directors and persons authorised by the directors can do that. And they are under a fiduciary duty to deal with the company’s assets in the best interests of all the shareholders.

So, throwing equipment in the skip is only justified if the cost of converting it to cash is less than the equipment is worth. Like if it’s a fax machine.

Toby Speight
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Dale M
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14

Minority shareholders can apply to court for an "oppression remedy" when the company acts in a manner that is unfairly prejudicial to minority shareholders.

Alternatively, a shareholder can initiate a derivative action on behalf of the corporation itself.

By the way, the particular act in your question cannot be taken by a shareholder qua shareholder. Shareholders can vote, and thereby can make resolutions that order the company to do certain things. But the actual doing has to be by the hands of the directors or delegates.

Your example is that "One day Alice decides to start destroying shareholder value, viz. by throwing all the company's expensive equipment into the trash." That is not an act available to a mere shareholder (unless they themselves are also a director). If this was done by a mere shareholder, the company could sue that shareholder for conversion/theft (in your hypothetical, by a derivative action).

Jen
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7

The majority of shareholders can vote in a slate of directors who can hire a CEO with a mandate to do things that reduce the value of the minority shareholders’ holdings.

That is why a venture capitalist investing in a startup negotiates a stock purchase agreement with the command the founders that had many provisions to insure they have protection from the majority.

For example if a VC invests 10 million dollars and gets 20% of the company they do not want the founders with 80% to decide to liquidate the company and distribute the resulting cash prorate to the shareholders.

George White
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