Issues Minority Interest Business Owners Commonly Face

If you own a minority interest in a business, it can be difficult to understand what rights you have in the company. While you are an owner and entitled to many benefits, you are also limited by your minority position. Below are a few rights of a minority business owner when it comes to business issues:

• A minority owner is entitled to his or her share of distributions of the company’s profits when distributions are made. However, a majority owner who wants to avoid making a distribution to a minority owner can usually do so. For example, the majority owner can build significant reserves for the company’s future expenses, pay him/herself a higher salary, purchase new equipment for the business, and a variety of other ways of spending enough funds so that there are not enough profits to make distributions. As long as the majority owner’s expenditures are not unreasonable, a minority owner will have a difficult time forcing the business to make distributions or permit him/her to share in the company’s income.
• A minority owner typically does not have the authority to participate in the management decisions of the business. Even if the majority owner makes a decision that is bad or it places your interest in the business at risk, the minority owner cannot do anything about it. Even if the majority owner is running the company into the ground, there may not be much you can do about it.
• If a minority owner wants to sell his or her interest in the company, your rights may be limited. You must review your rights to sell your interest as set forth in the partnership agreement as well as applicable state law.
• If the business is sold, you may be entitled to a share of the profits. However, it is important to understand that a sale can be structured in a way that avoids paying any of the proceeds to minority owners. For example, if the sale involves selling assets over a period of time and the proceeds being used to reinvest in a new business.