Maintaining Control over a Company After Losing Majority Shareholder Support

Losing Majority Shareholder Support

At the initial stage of developing a joint business, partners do not always consider such problems as maintaining control over the company, raider takeovers, etc. However, these problems may await the future, when the business will bring good returns. So, how to deal with it?

Majority shareholders in the corporate governance

The development and formation of joint-stock relations became possible with the transition to a market economy, and these participants in the property turnover are distinguished by their unequal position. The powers of the company are exercised at the general meeting of the board of directors and shareholders. Therefore, they make decisions based on the majority principle, and the minority can only accept the consequences of the shareholders’ decision taken by the majority of votes.

The general meeting of shareholders is considered the main governing body of a joint-stock company. The meeting is dedicated to strategic decisions on the further direction of development and distribution of profits. Shareholders participating in the general meeting and having the right to vote on important issues are the majority shareholders and minority shareholders. The majority shareholders are the owners of large blocks of shares, the size of which allows them to directly influence the decisions made by the management of the company.

The owner may lose influence in the company and the business due to economic, political, or corporate reasons. Economic and political risks depend more on objective factors: the situation in the market, competition, changes in legislation or government policy, and so on. Corporate factors arise from the relationship between business partners. As a rule, they are associated with the redistribution of shares and the entry of new owners into the company. The situation is when majority shareholders do not support the owner.

How to prevent loss of control over your company?

When the owner transfers the company’s operational management to a hired manager, there is a threat of weakening or even loss of power. It is necessary to delineate the functions and responsibilities of each of them to avoid this.

Here are some tips on preventive measures for the safety of your business when hiring a new director.

  • Study the new candidate. To protect his business, the owner needs to carefully check the new candidate for this position and his experience in previous jobs. You can prevent such data both on your own and with the involvement of specialists.
  • Eliminate the employment of a new director with competitors. It is advisable to introduce into the company’s charter and employment contract with a hired manager his restriction on work in competing firms and suppliers. This prohibition is valid for the entire term of the hired manager.
  • Limit powers. The business owner must refuse to delegate authority to the director fully. For example, to prohibit the company’s manager from carrying out transactions related to intangible services, with the company’s main assets, with real estate, loans, and credits without his consent.
  • Conduct independent audits regularly. To protect your business, you need to conduct regular audits with the involvement of independent experts and personally delve into the audit reports and the year’s results. According to statistics, a company’s 80-85% of problems are easily detected through systematic monitoring.
  • Have a reboot. Don’t forget to allow yourself to rest to gain strength. As a rule, on the 5th-7th day of rest, new ideas and thoughts begin to come, views on familiar things change, and plans appear not for a month but several years.