As a shareholder, it’s legit to 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 public or proprietary company shareholder.
Knowing your rights, duties, and responsibilities 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 perform your role and stay out of trouble.
There’s quite a bit to know. But don’t worry; we’ve got you covered. Read along to learn more about the duties, rights, and responsibilities of shareholders in a company.
Who 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 company’s daily management.
What is a shareholder’s 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.
What are shareholder rights?
Shareholders are granted six rights, listed below:
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 can vote 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, allowing 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.
What are 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.
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:
- Your class of shares. There are two main types of shares, ordinary and 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
- 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
- Whether you’re a Public or Proprietary Company shareholder, This will affect your rights and duties. For e.g., if you’re a public company shareholder, the company must send you a copy of its annual report at least 21 days before the Annual General Meeting (AGM).
Nevertheless, some rights and duties are common to all shareholders.
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 your rights and duties as a shareholder, you can hire a lawyer for legal advice.
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