Rights of Shareholders

Shareholders are the owners of a company and have certain rights. Rights of shareholders include right to dividends, right to attend and vote in meetings of shareholders, right to elect and remove directors, right to review/receive the financial statements of the company, and right to participate in any distribution of assets on windup up of the company.

Certain rights are only exercisable by shareholders holding a certain percentage of shares

Access to documents and information

The right to access the following documents and/or information is among the rights of shareholders.

• Statutory Registers maintained by the company (such as the register of directors or officers, debenture holders, shareholders etc.);
• Audited financial statements of the company along with an auditor’s report directors’ report; and
• Books containing the minutes of proceedings of general meetings.

Shareholders’ approval

Under the Companies Act, 2017, certain activities can only be carried out with shareholder approval (e.g., alteration of AOA, voluntary winding up of a company, declaration of dividends, etc.).

In this regard, the Act prescribes two forms of approval of the shareholders:

• Ordinary Resolution – resolutions passed by simple majority of the shareholders entitled to vote and present at a general meeting; and
  • Special Resolution – resolutions passed by at least three quarter majority of members entitled to vote and present at a general meeting.

Approvals can be given by the shareholders in general meetings (in person or through video-link) or in the case of a private or public unlisted company only, by written resolution, passed by circulation.

1. Matters requiring ordinary resolution include:

• Declaration of dividends;
  • Selling or otherwise disposing of a subsidiary of the company; and
  • Appointment of auditors.

2. Matters requiring a Special Resolution include:

• Alteration of AOA or MOA;
  • Issuance of shares at a discount;
  • Change the name of the company;
  • Voluntarily winding up of the company;
  • Reduction of share capital of the company; and
  • Making the liability of the directors unlimited.

Calling meetings

Requisition directors to call GM:

Shareholders holding at least 10% of the total voting power of the company can requisition the directors to call a general meeting. Directors are required to do so within 21 days from the date the requisition is deposited. If they do not, shareholders may call the meeting themselves but within 90 days of the date of deposit of the requisition.

AGM or GM as per Act:

If there is a default in holding the AGM or GM in accordance with the provisions of the Act, the shareholders may apply to the SECP, which may call or direct the calling of such meeting of the company.

Voting rights

Voting on a resolution at a GM shall be decided by a show of hands for which every member present has one vote.

However, a poll:

• May be ordered by the Chairman of the meeting of his own motion; or
• Shall be ordered by the Chairman if demanded by shareholders who are present and hold at least 10% of the voting power

In the case of a poll, every shareholder has votes proportionate to the paid-up value of shares carrying voting rights held by him.

Where a poll is demanded, a secret ballot:

• May be ordered by the Chairman of the meeting of his own motion; or
• Shall be ordered to be taken by the chairman of the meeting if demanded by shareholders who are present and holding at least 10% of the voting power.

No shareholder holding shares or other securities carrying voting rights shall be debarred from casting their vote, nor shall anything in the AOA have the effect of debarring. Shareholders may appoint a proxy to exercise their rights to attend, speak and vote at a meeting.

Participation in management

Rights of shareholders do not include the right to participate in the management of the company as it is determined by the BOD. Shareholders or their nominees have a right to sit on the BOD provided that they do not fall within the excluded categories specified in the Act (e.g. they are not declared an undischarged insolvent or of unsound mind)

A shareholder also has the right to require the company to hold a fresh election of directors, after the acquisition of the requisite shareholding to get the shareholder elected as a director on the board of the company. A shareholder must not exert influence or approach management directly for actions that may lead to creating hurdles in the smooth functioning of the management.

Appointing directors

Rights of shareholders include the right to elect the directors of a company. The first directors of a company are determined by the subscribers to the MOA and such directors shall hold office until the first AGM

Subsequent directors are elected in the AGM by the shareholders for a period of three years, unless earlier disqualified or ceases to hold office. A shareholder may, after the election of directors, upon the acquisition of the requisite shareholding to get himself elected as a director of the company, require the company to hold a fresh election of directors. 

Removing directors

A company may remove a director by passing an ordinary resolution (i.e., a resolution obtained passed by simple majority shareholders) in a GM provided that the votes cast against such a resolution do not equal to or exceed the thresholds specified in the Companies Act (Section 163). For practical purposes, given that it is not easy to execute the removal of a director provisions due to the aforementioned thresholds, it is typically preferred by companies to aim for the resignation of directors instead.

Any casual vacancy created on the board of a company shall be filled up by the BOD and the person appointed shall hold the office of director for the remainder of the term of the director who has been replaced.

The above written rights of shareholders are not the only rights they have. They also have the right to remove or appoint auditors, lodge complaint with the SECP and the right to dispose the shares.

Also read: Important Company Documents