Rights
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In this article, Kumar Gourav, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the rights and duties of Shareholders of a company

In India, companies are mostly established and governed by Companies Act 2013. There are basically two types of companies established in India, namely public limited company and private limited company. In India, people prefer to open private limited firm because of fewer restrictions and more benefits. Shareholders play an important role in a company. It is very important for a company to look after them as they should also be safeguarded and time to time proper bonus should be given to them.

Introduction

A shareholder, commonly referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock. Because shareholders are a company’s owners, they reap the benefits of the company’s successes in the form of increased stock valuation. Shareholders play an important role in the framing and profits of the company. Shareholders are the owner of the company. They are the main stakeholders in the company. There are two types of shareholders:

 

  • Equity Shareholders

    Equity shareholders are the main stakeholders in a company and when the time of dividend distribution comes the preference shareholders would get the first.

  • Preference shareholders 

    Preference shareholders generally have no voting rights because of their preferred status.  They receive fixed dividends, generally larger than those paid to common stockholders, and their dividends are paid before common shareholders.

The number of shareholders in a company depends upon the type of company which they are opening.

  • For a one-person company, one person is required.
  • For a private limited company, two persons are needed.
  • For a public limited company, a minimum of seven persons are required.

Shareholders’ Rights

There are various rights available to a shareholder. Different type of rights has been discussed below:

  1. Appointment of directors

Shareholders play an important role in the appointment of directors. An ordinary resolution is required to be passed by the shareholders for the appointment. Apart from this, shareholders can also appoint various types of directors. They are:

  • An additional director who will hold the office until the next general body meeting;
  • An alternate director who will act as an alternate director for a period of 3 months;
  • A nominee director;
  • Director appointed in the case of a casual vacancy in the office of any director appointed in a general meeting in a public company.

Apart from this shareholder also can challenge any resolution passed for the appointment of a director in the general body meeting.

  1. Legal action against directors

Shareholders also can bring legal action against director by the rules laid down in the Companies Act 2013. They are:

  • Any act done by the director in any manner which is prejudicial against the affairs of the company.
  • Any act done which is beyond the law or against the constitution.
  • Fraud.
  • When the assets of the company are being transferred at an undervalued rate.
  • When there is a diversion of funds of the company.
  • Any act done in a mala fide manner.
  1. Appointment of company auditors

Shareholders also have a right to appoint the company auditors. Under Companies Act 2013, the first auditor of the company is to be appointed by the board of directors. Further the shareholders at the annual general body meeting at the recommendation of directors and audit committee. The appointment is generally done for five years and further can be ratified by passing a resolution in the annual general body meeting.

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  1. Voting rights

Shareholders also have the right to attend and vote at the annual general body meeting. Every company registered in India should comply with the provisions of the Companies Act 2013. It is mandatory for every Indian company to hold an annual general meeting once in every year. The meeting can be held anywhere at the head office of the company or any other place as given by the company. At the meeting, there are various mandatory agendas which are to be discussed. These include the adoption of financial statements, appointment or ratification of directors and auditors etc.

When a resolution is brought by members of a company then according to companies act 2013 it can be passed only by the means of voting by the shareholders. Companies Act 2013 recognizes following types of voting:

  • Voting by the showing of hands – Every member present in the meeting has one vote. So, in this type of voting shareholders vote just by showing of hands.
  • Voting done by polling – In this type of voting the chairman or the shareholders’ demand for a poll.  However, in case of differential rights as to voting, a particular class of equity shares may also have weighted voting rights.
  • Voting done by electronic means– every company who has more than 1000 shareholders has to put up a facility of voting through online means. Every member should be provided with the means of voting of online.
  • Voting by means of postal ballot– any resolution in the meeting can also be passed by means of a postal ballot.

A shareholder also has a right to appoint proxy on his behalf when he is unable to attend the meeting. Though the proxy is not allowed to be included in the quorum of the meeting in case of voting, it is allowed by following a procedure mentioned in the Companies Act 2013.

  1. Right to call for general meetings

Shareholders have the right to call a general meeting.  They have a right to direct the director of a company to can all extraordinary general meeting.  They also can approach the Company Law Board for the conduction of general body meeting, if it is not done according to the statutory requirements.

  1. Right to inspect registers and books

As shareholders are the main stakeholders in a company, they have the right to inspect the accounts register and also the books of the firm and can ask questions about the same if they feel so.

  1. Right to get copies of financial statements

Shareholders have the right to get copies of financial statements. It is the duty of the company to send the financial statements of the company to all its shareholders either in a quarterly or annual statement.

  1. Winding up of the company

Before the company is wound up the company has to inform all the shareholders about the same and also all the credit has to be given to all the shareholders.

Other Shareholders’ Rights

  • When the sale of any material of any company is done then the shareholders should get the amount which they are entitled to receive;
  • When a company is converted into another company then it requires prior approval of shareholders. Also, all the appointment has to be done according to all the procedures and also auditors and directors have to be done;
  • Right to approach the court in case of insolvency.

Shareholders’ Duties

There are also responsibilities and duties of shareholders which they should perform. Besides several rights which they have, there exists several duties. They are:

  • Shareholders should participate in the general body meetings so that they can see and also can advise on the matters which they feel is not going good.
  • Shareholders should consult on the matters of finance and other topics.
  • Shareholders should be in touch with other members of the company so that they can see the work progress of the company.

Conclusion

Shareholders thereby play an important role in the functioning of a company. They have various rights which include the appointment of the company’s director, auditor etc., to voting rights and having a say when the company goes insolvent. With every right, comes a corresponding responsibility which the shareholder must carry out diligently.

 

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