- A tool for maintaining a minority shareholder’s ability to have some control over the corporation is to issue different classes or series of shares of stock.
- A corporation may allocate its ownership rights in almost any manner conceivable, and different classes of shares may be given different rights and limitations.
Classes of Stock Are Allowed Under NJ Corporation Law
The establishment of classes of shares must be incorporated in the certificate of formation, although the same result should be achievable through a shareholder agreement. For example, one class of shares might be empowered to select one or more directors, or be given superior rights to dividends or assets in a liquidation, or be given a veto power over certain matters.
The most common delineation of rights is between voting and non-voting stock. This provision may be of particular use in a closely-held corporation. Take an instance in which one shareholder is contributing the majority of the capital, but the other shareholder does not wish to relinquish control. One solution is to issue the two shareholders the same amount of voting stock and to issue additional non-voting shares to the first shareholder, so that the shareholder contributing the majority of the capital retains the majority of the equity, the majority of the dividends, and the majority of the assets in a liquidation, but does not receive operational control. In this way, the minority shareholder could actually be given effective control of the business.
To discuss your NJ shareholder matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney