Minority Shareholder Rights- Case

780 WordsDec 3, 20124 Pages
To: Joe Brock From: Sue Smith, CPA Subject: Minority Shareholder Rights Facts: Joe Brock is a minority interest shareholder in Big Corporation. Leslie Ross is a shareholder that owns less than 50% of the voting shares, but has the majority of the voting shares and thus has taken control of the corporation. According to SFAS 94, due to this control, Leslie Ross must consolidate his interest with Big Corporation. Mark Jones, a minority shareholder, is in a position of management for the company. Joe Brock is unhappy with Mr. Jones’ decisions and would like to challenge his authority. Issue: Determine what factors arise in considering if a minority investor can make maintain such control or what can be done to prevent others…show more content…
Consideration is given if the majority shareholder owns such a significant portion of the investee that the minority shareholder has a small economic interest. The larger the disparity, the more likely these are to be protective rights. In this situation, there is not a large disparity. b. If the corporate governance arrangements states that decisions are made at the shareholder level, these are likely to be substantive participating rights. c. If matters can be put to a vote of the shareholders, these are most likely substantive participating rights. References: ASC 810-10-25-5 Assessing whether the rights of a minority shareholder should overcome the presumption of consolidation by the majority investor depends on whether the majority investor has control over the corporation. Judging control depends on many factors, including if a minority investor has participating or protective rights. ASC 810-10-25-10 through 25-11 A minority investor that holds protective rights does take the control away from the majority investor and the owner of the majority voting interest would need to consolidate with the corporation. Substantive participating rights are granted by contract or by law. A minority investor that holds these rights can participate in significant decisions that are made in the ordinary course of business, including vetoing significant decisions proposed by the investor with the majority voting interest. If this
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