6 Practical Tips For Protecting Your Shareholders

As a business owner, you should be on top of protecting your shareholders. That is because your shareholders help dictate the direction in which your organization is going, and can lead to success for all involved.

Here are some practical tips to get you started.

1. Keep Communication Clear

One of the most effective ways in which you can protect your shareholders, and protect both your business and individual interests, is by communicating often and clearly. No investor or business will succeed together if they don’t communicate efficiently.

Good communication will help both businesses and investors with understanding what each other want from the relationship. This helps to identify the companies’ objectives, and also reduces the risk of any hostility towards management. 

Shareholder engagement should be one of the ongoing processes that are looked at from a strategic point of view, in order to ensure they are on your side. One way you can communicate with shareholders is by hosting an open Q&A forum with them, via invitation, where they can come and ask questions about the business, to see that their shares are protected.

If you’re worried about any surprising questions that could come your way, consider emailing ahead for a general idea of major concerns so that you can identify solutions when it comes to the Q&A.

You should also be providing your investors with quarterly updates of some kind, in order to keep them in the loop where possible. This is somewhere that you could provide sensitive sale information, and give them the chance to see what their shared have been working towards

2. Don’t Surprise Them

As much as communication should be a priority for dealing with your shareholders, it will also be important for you to be aware of surprises. This means not surprising your shareholders with anything that could turn them against you.

For example, whilst you should be communicating with your shareholders where possible, it may not actually be in your best interest to talk to them about every little setback or slow down. This is especially true If it turns out to be something that is easily fixable. 

Shareholder confidence will be higher by being honest in the long-term but could be damaged by constantly coming to them regarding something irrelevant. Of course, one of the best ways to earn shareholder confidence is by driving good sales and numbers in general. 

3. Protect Your Business In Case Of Shareholder Death

For smaller businesses it is important that the shareholders are protected should they become critically ill or pass away.

If a majority shareholder died the business and remaining shareholders may not have the funds to buy these shares from the deceased loved ones and regain control over the business. 

This could leave them in control of the business with little experience whilst struggling with their bereavement. With nowhere else to turn they could potentially look for another suitor to buy the shares which could be a competitor.

By protecting large shareholders with shareholder protection insurance you can ensure the funds are available to purchase the deceased shareholding should the worst happen. 

This ensures the business remains in the right hands and limits the financial pressure on the remaining shareholders during such difficult times. 

4. Understand Shareholders Rights

In order to best protect your shareholders, you should absolutely be able to understand their rights, and what affects them. For you personally, the more aware you are of shareholder rights, the better you’ll be equipped in order to protect commercial interests.

What shareholders can do, if empowered enough, is actually appoint or remove a director through an ordinary resolution. This means the majority of shareholders will need to vote in favor of it.

Shareholders will also have the right to demand a meeting for important business matters. Mainly, these meetings are for the removal or appointment of directors, but they may also go for a special resolution. These demands usually point the business in a drastic change of direction, such as overriding the company’s article of association, and they will require at least three-quarters of shareholders to agree.

There are even some decisions that must be met with shareholder approval, in order to move forward. For example, if a business wishes to change its name, then the motion will have to pass through a special resolution.

Similarly, when it comes to takeovers, shareholders that hold at least 50 percent of the voting rights, will be able to agree to a sale of their shares and see a new company takeover. That is why you want your shareholders on your side so that you won’t be ousted out at the first opportunity.

5. Prepare For Unexpected Issues

No matter what industry you operate within, you will need to be able to protect your business interests at all times. One way in which you can do this is by giving you and your shareholders a safety net of times.

This helps give peace of mind to not only the business but to the shareholders too. There is another type of insurance available to business owners to operate, known as shareholder protector insurance. This helps with what happens to shares in the case that a shareholder was to pass away.

Of course, a business won’t want their shares going out to someone who has no interest in what they do, or even a third party who won’t want to work with them. This protection insurance is agreed upon between a business and a shareholder is able to find out what should happen, laying out the rules for buy-outs and general shareholders.

6. General Benefits And Rewards

What many successful businesses and corporations do, is pay out benefits and rewards to their shareholders when they turn a big profit. This is a great way of saying thanks to shareholders who have been investing in the organization, even when things looked bleak.

This will not only help keep them on your side, but it will also provide shareholders an incentive to purchase more shares and make more moves in dividends.

It is also just a nice thing to offer out and could entice further investment from external sources. It could also lead to better talent applying for jobs, as they see you are a corporation of caring.