Shareholders Rights and Responsibilities: A Guide
Shareholders may not run a company's daily activities, but they're still important. Find out here what the rights and responsibilities of shareholders are.
A shareholder is a person or legal entity that has an ownership interest in a company. Shareholders are owners of the company and are issued shares which each represent a slice of the company. As ownership and control are separated, shareholders do not partake in the business’s daily activities. However, as equity owners, they enjoy certain rights and responsibilities. We will explain what these are in this article.
Shareholders Rights and Responsibilities
A shareholder’s rights and responsibilities depend on multiple factors. Firstly, it depends on the class of securities and more precisely, whether it is preferred or common stock. Secondly, it depends on the company’s constitution and the terms of the shareholders agreement. This sets out rules as to the shareholders roles and responsibilities in the company. However, there are a few rights and responsibilities that are common for all shareholders.
1. Right to access financial records
As owners of the company, shareholders have the right to inspect a company’s books and records. This is so that the shareholder knows how well the company is doing. The company may do this by providing audited financial statements or financial reports to the shareholders.
2. Right to sue for wrongful acts
Shareholders have the right to sue directors and executives for wrongful acts. This include misdeeds of directors and other officers.
3. Right to vote
The right to vote is the most important right a shareholder has. This right enables shareholders to participate in corporate decision-making. Their voting power includes the right to appoint directors, the right to make proposals, the right to 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 gathering of a company’s shareholders. Here, the directors of the company presents the shareholders the company’s annual report and comment on its performance over the year. During the AGM, shareholders may elect new directors, discuss directors remuneration, and ask questions regarding the company moving forward.
5. Right to transfer ownership
Shareholders of publicly listed companies have the right to trade their ownership interest or shares on the ASX. This is important as shareholders are able to quickly exchange their shares into money. The liquidity a share provides is very important.
Shareholders are not responsible for the company’s legal obligations. This is because the company is a separate legal entity. As a result, a company’s assets are not the shareholders. Further, shareholders are not entitled to anything except for their ownership interest in the company. Shareholders are also not responsible for the company’s debt. However, if a company is liquidated, creditors are first in line to have their debts paid, then bondholders, and then common shareholders.
However an exemption to this is that a shareholder is liable to pay the company for any amount unpaid on their shares.
Although shareholders have general rights and liabilities, a shareholders agreement may vary those rights. A shareholders agreement is a legal contract between the shareholders of the company. It is an agreement that outlines the intention of the parties and regulates the rights, responsibilities, liabilities and obligations of each shareholder.
As a shareholder, you have important rights when it comes to corporate decision-making. Generally, as a shareholder, you have the right to access financial records, right to sue for wrongful acts, right to vote, right to attend the AGM, and right to transfer ownership. However, these rights may vary depending on the company’s shareholder agreement and company constitution. If you want further clarification on what your obligations as a shareholder are, you can contact a business lawyer for further advice.
Ryan currently works in the content team as a Legal Intern for Lawpath. He is in his third year of a Bachelor of Law and Business degree at UTS.