Minority shareholders are shareholders that do not contribute in large part to the ownership of a company. They may own a few shares or even a few hundred (or more, depending on the number of shares outstanding), but they do not come close to have a controlling interest or even to threatening shareholders that might be interested in a controlling interest. In private companies, these types of shareholders are not as common, but may be present in larger companies. There are several benefits to have such a small stake in a business.
Typical Stock Benefits
First, being a minority shareholder, even in a private business, does not mean that the shareholder loses any advantages to owning the stock in the first place. The stock can still appreciate in value, especially if the company eventually makes its public offering. Minority shareholders can still sell their stock in the future to make a profit if the investment is healthy, and can still reap the dividends that the business awards. These benefits do not go away because of the status of the shareholder.
Freedom from Involvement
Minority shareholders do not have a large say in the appointment of new members on the Board of Directors or major business decisions. In private companies they may appoint a representative, but rarely get involved themselves. This may be a distinct advantages for many shareholders, who do not want to be troubled by running a company or making such decisions. It provides an easy way to invest, diversify, and let the business run itself, especially for those not looking to become actively involved.
On the other hand, a key advantage of being a minority shareholder is that the right to be aware of company decisions and have input is still there. Even a minority shareholder can demand access to basic financial documents and information, just as any shareholder can attend the annual meeting of shareholders. Minority shareholders also have the right to cash out their shares if the private company is subject to a merger or acquisition.
When a private company values its shares in preparation to sell or transfer, it must usually include what is known as a minority discount. This is essentially a discount on shares that do not provide as much company ownership as other shares (such as stock in a lower class). This means that minority shareholders may actually be able to buy shares for less than other investors while still receiving many of the same monetary benefits, especially in the long term.
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