Legally, there are a number of issues here. One is the dilution of shareholders’ ownership of a company. Dilution occurs when a corporation (a similar situation can happen with other business forms) reduces the amount of control some or all of the existing shareholders have. Obviously, this can be a major concern for shareholders. When this occurs, it more often happens in closely held corporations as a power play by one of more shareholders to reduce the influence of other shareholders.

In the AIG case, the dilution of the shareholders’ interest in the company gave the federal government an outright majority of the shares of the company and thus the ability to control the company. This is a rather extreme example of dilution.

The question now is, can the shareholders win? I doubt it. While it appears they have a legitimate issue and the case may well go differently if this weren’t such a hot button political issue, the fact is, it is a major political question, and the usual rules may not be applied.

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