Rights of shareholders | Company Law - CLAT PG PDF Download

Introduction

Shareholders or members of a company possess several important rights that are crucial for their participation and protection within the corporate framework. These rights include:

1. Voting Rights

• Equity Shareholders: Every equity shareholder has the right to vote on all resolutions presented to the company. Voting rights are proportional to the shareholder's share in the paid-up equity share capital.
• Preference Shareholders: Preference shareholders can vote only on resolutions that directly affect their rights, as well as on winding up, repayment, or reduction of share capital. Voting rights are proportional to the paid-up preference share capital.
• Voting Rights Provisions: Voting rights are subject to provisions related to different kinds of share capital, unpaid share capital, and related party transactions.
• Default Dividend: If dividends on a class of preference shares are unpaid for two years, those shareholders gain the right to vote on all resolutions.

2. Dividend Rights

• Equity Shareholders: Have the right to receive dividends declared by the directors, both yearly and interim, as per the Companies Act, 2013.
• Preference Shareholders: Entitled to receive dividends according to the terms of the preference shares. Participating preference shareholders may also receive extra dividends from surplus profits.
• Proportional Dividends: A company may pay dividends in proportion to the amount paid-up on each share if authorized by its articles.

3. Right to Uniform Calls on Shares

When the company makes calls for a class of shares from uncalled capital, such calls must be made uniformly for all shares of that class.

4. Right to Payment at Winding Up

• Preference Shareholders: Have the preferred right to payment at the winding up of the company or repayment of capital. They may also participate in surplus capital if they are participating preference shareholders.
• Equity Shareholders: Have the right to payment from the remaining capital of the company after repaying creditors and preference shareholders at winding up.

5. Variation of Shareholders' Rights

• Shareholders' rights can only be varied with the written consent of at least three-fourths of the issued shares of the affected class.
• If variation affects the rights of another class of shareholders, their consent is also required.
• Dissenting shareholders may apply to the Tribunal for cancellation of the variation.

6. Right of Participation in Annual General Meeting (AGM)

• Shareholders have the right to receive notice for attending the AGM and to access financial statements, including auditors' reports and directors' reports presented at the meeting.

7. Right to Transfer Shares/Securities

• Public Companies: Securities or interests of members are freely transferable under the Companies Act, 2013.
• Private Companies: Approval from the Board of directors may be required for share transfers.
• Members have the right to transmit shares/securities or interests in the company, and the company can register such transmissions.
• Holders of securities can nominate a person to whom their securities will vest in the event of their death.

8. Rights Issue

Every equity shareholder has the right to be offered shares during further issues of capital, protected by the Companies Act, 2013.

Duties and Liabilities of Shareholders/Members

• Shareholders' rights and liabilities are governed by the company's articles and the provisions of the Companies Act, 2013.
• Members must actively participate in company meetings and vote on important resolutions, such as the appointment of directors and auditors, and changes to the memorandum and articles of association.
• Minority shareholders should be vigilant about their rights and responsibilities. All shareholders are liable to pay the full amount of their shareholding.
• The Companies (Amendment) Act, 2017 introduced Section 3-A, which holds members severally liable for the company's debts if the number of members falls below the statutory requirement and the company continues to operate for more than six months.
• Shareholders may pledge or mortgage their shares as movable property. Physical share certificates can be pledged for loans, while dematerialized shares require registration of the pledge or mortgage with the depository.