Rights And Duties Of Shareholders, What You Need To Know?

Rights And Duties Of Shareholders, What You Need To Know?

Sep 11, 2019
Reading Time: 4 minutes
Written by Ilyas Omari

As a shareholder, I’m sure you ask yourself  ‘What rights and duties do I have ?’. 

The answer to this question depends on several factors including the class of your shares, your company’s constitution and whether you’re a shareholder of a public or proprietary company.

Knowing your rights and duties as a shareholder is crucial. 

Your rights allow you to have an impact on your company and enjoy the benefits of being a shareholder. Whereas knowing your duties will ensure you’re performing your role and staying out of trouble. 

There’s quite a bit to know. But don’t worry we’ve got you covered.

If you want to know your shareholder rights and duties, read along!

What is a Shareholder?

To be a shareholder(member) by law, you’re either a person or a legal entity who owns part of a company through shares. The shares issued to shareholders as owners of the company each represent a piece of the company. Due to ownership and control being separated, you don’t participate in the daily management of the company.

Factors that affect your shareholder rights and duties

Your shareholder’s rights and duties outlined in the Corporations Act will depend on the following factors:

  1. Firstly, it will depend on your class of shares. There are two main types of shares, ordinary or preference shares.  

Owning ordinary shares allows you to vote on decisions that all company existing shareholders vote on. Furthermore, you’re entitled to a share of the company’s profits when dividends are issued

Owning preference shares means you’re given preferential treatment compared to ordinary shareholders. For e.g. you’re prioritised if your company becomes insolvent or is winding up in regard to getting repaid, and you have the right to receive a fixed dividend payment

2. Secondly, your company’s constitution, replaceable rules and the terms of your company shareholders agreement will affect your rights and duties. These set out the rules regarding your role, rights and duties in the company

3. Whether you’re a Public or Proprietary Company shareholder will affect your rights and duties. For e.g., if you’re a shareholder of a public company, the company is required to send you a copy of its annual report at least 21 days prior to the Annual General Meeting (AGM)

Nevertheless, some rights and duties are common to all shareholders.

Shareholders Rights

1. Right to access financial records

Being a company owner, you have the right to inspect your company’s books and records to see how the company is performing. 

The company gives this right by providing audited financial statements, financial reports or directors’ reports. As a shareholder, you also get to inspect the company’s share register for free.

2. Right to sue for wrongful acts

You have the right to sue directors, officers and executives for their wrongful actions. It’s important to note that ASIC doesn’t get involved with the disputes of proprietary companies.

3. Right to vote on key issues

Your voting rights enable you to participate in corporate decision-making. 

The voting powers shareholders have gives them the right to:

  • Appoint directors of the company through an ordinary resolution being passed at shareholder meetings
  • Dismiss existing directors from the board of directors
  • Make proposals for the company
  • Vote for structural changes such as mergers and acquisitions or liquidation

4. Right to attend the Annual General Meeting (AGM)

The Annual General Meeting (AGM) is an annual meeting held for a company’s shareholders

  • During these shareholder meetings, the directors of your company will present you with the company’s annual report and will comment on the company’s performance over the financial year
  • During the AGM, shareholders may elect new directors to join the board of directors, discuss directors’ remuneration, and ask questions regarding the company’s future
  • Members of the company vote can through a show of hands or through a poll

5. Right to transfer ownership

Shareholders of publicly listed companies have the right to trade their ownership interest or shares on the Australian Stock Exchange (ASX). An important aspect of a share is its liquidity and this allows shareholders to sell their shares easily. However, you may be restricted from selling your shares.

6. Participate in corporate actions and share in the company’s profits

As a shareholder, you have the right to receive distributions, dividends, share buybacks, share issues and share mergers.

Shareholders Duties

Due to a company being a separate legal entity, as a shareholder, you’re not responsible for the company’s legal obligations. 

Therefore, a company’s assets are not its shareholders. Furthermore, you’re not entitled to anything except for your ownership interest in the company. 

Shareholders are generally not responsible for the company’s debt. However, an exemption to this is that you’re liable to pay the company for any amount unpaid on your shares as a shareholder. 

If a company is liquidated, creditors have their debts paid first, followed by bondholders and then common shareholders. 

As a shareholder, you may have additional duties that are specifically outlined in your company’s shareholders agreement or company constitution.

Furthermore, if you’re a company director and a shareholder, you will have a larger number of duties. By law, directors’ duties are more extensive than shareholders.

Shareholders Agreement

Although shareholders have general rights and duties, a shareholders agreement may vary those rights and duties. A shareholders agreement is a legal contract between the shareholders of the company. 

It outlines the intentions of the shareholders and regulates the rights, duties and liabilities of each shareholder. Shareholder agreements must be drafted correctly to be enforceable.

Shareholder agreements also outline how minority shareholders are protected and to who the company must offer new shares.

Conclusion

You should know your many important shareholder rights and duties in relation to your company. 

By exercising your rights as a shareholder, you have the ability to impact your company. While knowing your duties will keep you out of trouble and make sure you do your job.

If you need further guidance on what your rights and duties as a shareholder are, you can hire a lawyer for legal advice.

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