Minority Shareholder . . .

refers to an investor who does not own enough stock to elect a majority of a company’s board of directors and so cannot control the manner in which the company is run. However, in some cases, a minority shareholder may represent a "swing" vote in battles for control or may have contractual rights to participate or veto certain actions within a company. Minority shareholders can also contract for control or participation rights.

Venture capitalists frequently acquire minority shareholdings in companies and contract separately for a measure of control. Typical participation rights venture capitalists request include the rights to:

  • obtain representation on a company’s board of directors,

  • receive regular reports on the financial condition of the company,

  • require completion of identified tasks, and

  • approve (through negative covenants) certain types of major actions taken in the future.

Venture capitalists also sometimes provide their funding in stages as a method of requiring certain milestones to be accomplished. See: Affirmative Covenants, Control, Negative Covenants, Shareholders’ Agreements, Stage Financing, Venture Capital Deal Structures, Voting Agreements.