Shareholders are vital to the smooth functioning of any business. Their risk in holding stock in a company provides the main source of capital and keeps the company going and growing. There are two types of shareholders, minority and majority. A minority shareholder can hold from either five to forty-nine percent of the company, and the majority shareholder is typically the primary owner of the company.
Sometimes the perspectives of two shareholders can differ greatly. The majority shareholder has a tendency to make the larger decisions in the company and since he or she has the most invested, they work harder to ensure the success of their company. The minority shareholder is taking a risk just like the majority shareholder; however it can seem like a less significant risk. The minority shareholder sometimes feels as though his or her hands are tied and if they do not agree with the business practices, their opinions and advice do not hold the same gravity as the majority shareholders.
The differing perspectives of the two shareholders sometimes lead the majority party and the minority party to disagree. When this happens, the business can come to an almost complete stand-still as the shareholders may feel they need to agree on something in order to move forward. When this happens, one shareholder may offer to buy out the other shareholder. Generally speaking, the majority shareholder will offer to buy out the minority shareholder because they already have a larger stake in the company and may have been making more significant decisions for a longer time.
Generally speaking, the best solution for everyone involved in a company is for one shareholder to buy out the other if there are intense disagreements over the path the company should be taking. If the tense situation or disagreement springs from family or other close relationships, the tensions can cripple and destroy, or at least severely hinder, the business. The buyer who is buying out the other shareholder would be well advised to offer a more than fair price for the shares he or she is buying, just to ensure that the transaction is more than fair to the shareholder selling.
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