{"id":114131,"date":"2023-01-30T13:06:39","date_gmt":"2023-01-30T05:06:39","guid":{"rendered":"https:\/\/zegal.com\/?p=114131"},"modified":"2023-01-30T13:45:31","modified_gmt":"2023-01-30T05:45:31","slug":"right-and-responsibilities-in-shareholders-agreement","status":"publish","type":"post","link":"https:\/\/zegal.com\/en-gb\/blog\/post\/right-and-responsibilities-in-shareholders-agreement\/","title":{"rendered":"Shareholders Agreement 101: Rights and Responsibilities(Part 1 of 10)"},"content":{"rendered":"\n
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Image by rawpixel.com<\/a> on Freepik<\/figcaption><\/figure>\n\n\n\n

A shareholder is an individual or a legal person who holds a part of the company through shares. Shareholders own a portion of a company and have unique rights and responsibilities to the company as its proportionate owners. From the management of affairs within of company to the protection of its long-term economic interests, shareholders play a crucial role in the company\u2019s administration and growth. Since shareholders hold the privileges like voting rights they have the responsibility to protect the company\u2019s and subsequently their financial interests. <\/p>\n\n\n\n

Shareholders participate in the exercise of the governance of the company. The primary mechanism through which the shareholders dictate a company\u2019s trajectory is through their decision-making power or their voting rights. They are also key to the company\u2019s executive issues. Therefore, shareholders have a responsibility to carefully monitor the workings of the company to ensure that management is performing its duties. Shareholders need to promote more effective corporate governance in the company to guarantee the company maintains accountability and transparency.<\/p>\n\n\n\n

<\/span>Rights of Shareholders <\/strong><\/span><\/h2>\n\n\n\n

As a shareholder, you will hold the following rights:<\/p>\n\n\n\n

<\/span>1. Access to the company\u2019s financial records<\/strong><\/span><\/h3>\n\n\n\n

As shareholders are proportionate owners of the company, they have the right to inspect the company\u2019s financial archives. This allows the shareholders to observe the status of the company\u2019s performance.  <\/p>\n\n\n\n

A shareholder can also review the company\u2019s share registers. They have the right to access audited financial statements. A company grants the shareholder this right by providing them with audited financial statements, director\u2019s reports, and financial reports.   <\/p>\n\n\n\n

<\/span>2.  Voting Rights<\/strong><\/span><\/h3>\n\n\n\n

Shareholders\u2019 voting privileges enable them to take part in the company\u2019s decision-making process. Through their voting rights, shareholders can derive the right to appoint the company\u2019s director. This can be done through an ordinary resolution that is passed in a shareholder\u2019s meeting. They may also dismiss existing directors from the board of directors. Voting rights also affect the proposals brought forth by the company and are decisive for a company\u2019s prospective structural transformations like liquidation, acquisitions, or mergers. <\/p>\n\n\n\n

<\/span>3. Right to sue unlawful actions<\/strong><\/span><\/h3>\n\n\n\n

  A shareholder has the option to sue executives, directors or another authoritative member for their unlawful actions. Likewise, they have the right to file suit for other wrongful acts within the company. <\/p>\n\n\n\n

<\/span>4. Right to attend the Annual General Meeting (AGM)<\/strong><\/span><\/h3>\n\n\n\n

An Annual General Meeting allows the company\u2019s shareholders to interact and assess the annual performance of the company. In this shareholder meeting, the company\u2019s director presents the shareholders with the annual report of the company and remarks on the company\u2019s conduct over the year. The shareholders discuss the election of the new board, and directors and plan the upcoming prospects for the company. An AGM may also hold polls through which shareholders can vote for the next year\u2019s executive board. It is an opportunity for shareholders to review the performance of their company.<\/p>\n\n\n\n

<\/span>5. Participate in corporate actions and share in the company\u2019s profits<\/strong><\/span><\/h3>\n\n\n\n

A shareholder has the right to benefit from the company\u2019s profit through their shares. These include dividends, distributions, share issues, mergers, and share buybacks.  <\/p>\n\n\n\n

<\/span> 6. Right to transfer ownership<\/strong><\/span><\/h3>\n\n\n\n

If you are a shareholder in a publicly listed company, you have the right to transfer your ownership.  The liquidity of a share is a crucial aspect that permits the shareholders to transfer their shares conveniently. The right to transfer ownership of shares has certain conditionalities. However, you may be restricted from selling your shares.<\/p>\n\n\n\n

<\/span>Responsibilities of Shareholders<\/strong><\/span><\/h2>\n\n\n\n

The primary responsibility of shareholders incorporates the duty to pass resolutions during the general meeting. This is achieved via voting. This duty is important not only because it allows shareholders to exercise their power, but also because it dictates the company\u2019s trajectory. <\/p>\n\n\n\n

Shareholders can fulfill this responsibility in two ways. They may either vote through a show of hands or vote in the polls. A vote by-polls is proportionate to the number of shares held by the shareholder in the company.  <\/p>\n\n\n\n

Usually shareholders either vote on a special resolution or an ordinary resolution. A company requires special resolution in unique circumstances that entail sensitive issues. For instance, a change of article of association is an example of a circumstance requiring special resolution.  <\/p>\n\n\n\n

A special resolution can only be passed with a majority of 75%. In this case, the nature of the resolution is not mentioned, the resolution is generally taken to be an ordinary resolution. Unlike, the special resolution, an ordinary resolution requires a simple majority of 50%. An ordinary resolution is usually conducted through a simple show of hands. <\/p>\n\n\n\n

<\/span>Factors affecting the rights and responsibilities of shareholders<\/strong><\/span><\/h2>\n\n\n\n

Shareholders’ rights and duties are influenced by various factors including the class of shares, the constitution of the company, and the nature of shareholders. In some states like Australia, the Corporations Act<\/a> outline these factors. <\/p>\n\n\n\n

The class of shares will influence the rights and duties of the shareholders. Since there are two forms of shares: ordinary and preference, the rights of a shareholder are depended on the form of shares. In contrast to the owners of ordinary shares, preference shareholders do not have voting rights. However, owning preference shares entitle you to special privileges like priority distribution of dividend payments and security to your initial investments in case of bankruptcy. <\/p>\n\n\n\n

A company\u2019s constitution and terms for shareholder agreement also influence the rights and duties of the shareholders. The shareholder’s agreement demarcates the rights of the shareholder. Likewise, if you are a public company\u2019s shareholder, the company has the obligation to provide you with a copy of its report of annual performance, 21 days before its Annual General Meeting. However, a proprietary company shareholder does not have similar rights.<\/p>\n\n\n\n

<\/span>Conclusion<\/strong><\/span><\/h2>\n\n\n\n

A shareholder receives specific privileges after obtaining ownership in the company. They have certain obligations and rights to the company. Voting right is also an obligatory aspect of being a shareholder. In addition to that, shareholders have the right to sue unlawful actions, transfer their ownership, attend the company\u2019s general meetings, and access the company\u2019s financial records. The rights and responsibilities of a shareholder are dependent on the nature of the shareholder, the constitution of the company, and the nature of the shares.<\/p>\n\n\n\n

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