Investor rights refer to the legal protections shareholders have that ensure fair treatment, access to key company information, and recourse in cases of dispute.
Core Protections Typically Include:
- Voting powers to elect boards and weigh in on major decisions proportionate to shareholding.
- Preemptive rights giving priority in purchasing new stock offerings.
- Rights issues allowing participation in capital calls on a pro-rata basis.
- Disclosure of annual reports, related party transactions, and any changes affecting shareholder interests.
- ability to sue directors for misconduct, negligence or breach of fiduciary duties.
Example:
Minority shareholders of an energy company sued directors for approving excessive executive bonuses without properly informing investors beforehand, in breach of disclosure requirements.
Importance:
Robust investor rights uphold principles of transparency, accountability and equitable treatment – promoting confidence that spurs greater investment and lower capital costs for firms.