Shareholder Rights in Tennessee

by Jeff Franco J.D./M.A./M.B.A.

If you own stock in a corporation that's formed in Tennessee or subject to its jurisdiction, the state affords you certain rights to protect your investment. Like many other states, Tennessee has adopted the Model Business Corporation Act, which includes a number of sections on the rights that shareholders can exercise. But even if you're a shareholder of a corporation governed by a different jurisdiction's laws, it's likely your state affords shareholders identical or similar rights.

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Voting Rights

Tennessee affords all shareholders who own any class of stock one vote for each share. The right to vote on corporate matters at shareholder meetings is essential to ensure investors have some level of control over their investment in the business. However, a Tennessee corporation's articles of incorporation can limit voting rights to certain classes of stock. A common example is reserving voting rights for shareholders who own common stock, leaving shareholders of preferred stock without a vote.

Derivative Actions

In most cases, it's a corporation's board of directors who determine how the company is run and appoint officers to manage the day-to-day operations. When a board fails to act in the best interest of the corporation, shareholders can file a derivative action in court to force the board to take a certain course of action. Before filing a derivative action in court, however, Tennessee law requires shareholders to send a demand letter to the board and wait up to 90 days for a response – unless irreparable harm will be done during this time.

Dissenting Shareholder Rights

All major decisions affecting the corporation, such as whether to merge with another company, sell off a substantial portion of business assets or dissolve, must be approved by shareholders. For dissenting shareholders – those who vote against a corporate action that's ultimately approved by a sufficient number of votes – the law gives them the right to redeem their stock with the corporation at its fair market value.

Inspecting Corporate Records

A corporation's board and employees cannot prevent investors from inspecting and copying documents if shareholders provide notice and request to view the documents during regular business hours. One caveat, however, is that shareholders must state a “proper purpose” for inspecting corporate records in the notice. In other words, the request must relate to a shareholder's interest in the corporation rather than as a tactic to disrupt operations.

Special Meetings

Tennessee law also gives shareholders the right to request special meetings to initiate a vote on a significant matter. To call a special meeting, at least 10 percent of all shareholders eligible to vote, or a larger percentage if stated in the articles of incorporation, must send a demand letter outlining the reasons for the meeting to the corporation's board.