In our previous blog post, we mentioned that holding shares in a company represents one’s stake of ownership in the business. This gives rise to certain level of control in that company based on the proportion of shares held in the company.
Share ownership also confer certain rights and responsibilities on the shareholders in exchange for their investment in the company.
In this blog post, we dwell more in-depth into the rights and responsibilities of shareholders. We have to bear in mind that the rights of shareholders may vary from company to company according to the type of shares they own and subject to the provisions of the company’s constitution.
Shareholder Rights
Here are three basic shareholder rights you should know when you hold shares in a company:
1. Rights to Vote
Shareholders get to carry out to exercise their voting rights at general meetings. Ordinary shares typically carry one vote per share at general meetings. You can refer to our earlier blog post – What is Consent to Shorter Notice? – which sets out examples of resolutions which require shareholders’ approval at general meetings.
Your Company can control how the votes are exercised by issuing other types or classes of shares which carry no voting rights, additional voting rights (e.g. 100 votes per share), or restricted voting rights (e.g. allowed to vote only for specified resolutions). We will look into the various types of shares in our next blog post.
2. Rights to Profit Sharing
Shareholders are entitled to receive their share of the company’s profits which are distributed in the form of dividends. Typically, dividends are paid in proportion to the shares held by each shareholder.
Your Company can control how it distributes dividends by including provisions in its Constitution to vary the amount of dividend payout for different types or classes of shares (e.g. higher dividend to be paid to preference shareholders).
3. Rights upon Liquidation / Winding-up
Shareholders are entitled to receive the residual assets of the company upon its liquidation or winding up after all debts and costs are cleared. Typically, the division of residual assets is carried out based on the shareholders’ respective equity interest in the company.
Your Company can control how it distributes its residual assets by including provisions in its Constitution to give priority to certain classes of shareholders for such distribution.
Shareholder Responsibilities
You should be aware of the following three main responsibilities as a shareholder of a company:
- Understand the provisions of the company’s Constitution. There might be certain additional rights which certain classes of shareholders may have as a result of the class of shares which they hold.
- Attend and participate actively in the company’s general meetings. Shareholders should express their views on matters affecting the company and protect the company’s interests.
- Contribute to the company’s share capital by paying for their shares in full. Shareholders are obligated to pay up their share of the unpaid share capital, if yet to do so.
Conclusion
Given that shareholders have certain responsibilities towards the company, they are required to exercise their rights in the best interests of the company.
To maintain a positive impact on your Company in terms of decision-making, financial position and company management, your Company can adopt various classes of shares and specify different rights to founders, investors, independent directors and even employees of your Company.
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