The Hour Glass

[d.o.g.]

The company is ethically obligated to the shareholder, either via IPO subscription or via secondary market. The shareholder right is transfer with the sale of the share in secondary market.

Shareholder rights are a legal entitlement. They are transferred with the sale.

Ethical obligations are a different matter and are entirely at the discretion of the controlling shareholder to honour. They are under no legal compulsion to accord the new shareholder the same respect or deference showed to the old shareholder.

That is to say, if dividends are distributed, ALL shareholders will share. That is their legal right. But the controlling shareholder is not REQUIRED to declare dividends to the new set of shareholders even if he is ethically obligated to do so. Indeed, the appearance of an unwelcome shareholder may well induce the controlling shareholder to reduce or even omit dividends, in order to frustrate the unwelcome shareholder into leaving. In such a case, the controlling shareholder may not be behaving ethically, but he is certainly acting legally.

Again, I am not saying that I agree with such thinking, just that such thinking can be seen to be valid from the controlling shareholder's perspective.