While shareholders collectively own a company, they do not control the day to day running of it – that’s the role of the company directors. In exchange for their investment, however, shareholders have a range of rights available and retain power over certain major company decisions.
Shareholders’ rights arise in the main from the Companies Act 2006. However, these may be modified by the company’s articles of association, a shareholders’ agreement and possibly under the terms of a specific share issue.
Different shareholders’ rights may also attach to different classes or types of share and some are only available to those with a certain percentage of the shares in issue.
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In this article we look at the most basic shareholders’ rights that are generally available – so they usually apply to all shareholders, regardless of how many shares they hold.
1 To attend general meetings and vote
All shareholders have the right to receive notice of general meetings and attend them. This includes both Annual General Meetings and Extraordinary General Meetings, but does not extend to meetings of the company directors.
Shareholders will usually have the right to vote at the General Meeting. Typically, shares will carry one vote each but that’s not true in all cases:
- There may be non-voting shares which carry no voting rights at all
- Some shares may give the holder the right to multiple votes per share
- Some shares may only give a right to vote in certain circumstances
If the shareholder cannot attend a General Meeting, they also have the right to appoint a proxy to attend and vote on their behalf.
2 To receive a share of the company's profits
The company can choose to distribute profits by payment of a dividend to shareholders. A dividend can only be paid from profits and, even if the company is profitable, there is no obligation on the directors to declare a dividend. Shareholders cannot vote to pay a dividend which is more than the directors have recommended.
Usually the dividend will be a fixed amount paid per share, although variations from this are possible. Some classes of share might have no right to dividends or only qualify for dividend payments if certain conditions are met.
3 To receive certain documents from the company
The main documents of interest to shareholders will be the company’s annual report and accounts. Each shareholder has the right to receive these when they’re issued generally and on request. Shareholders also have the right to receive a copy of any written resolution proposed by either the directors or shareholders.
Many companies will issue other documents and updates about the company. However, it’s worth noting that shareholders have no right to receive most other documents – so, for example, they cannot usually demand to see copies of the management accounts prepared for the directors.
While there is no absolute right in law to receive a paper share certificate, most companies will issue them
We often get asked whether shareholders have the right to receive a share certificate. While there is no absolute right in law to receive a paper share certificate, most companies will issue them and it’s often required by the company’s articles of association. A shareholder does, however, have a right to have their name listed in the company’s Register of Members – which is the legal proof that someone is a shareholder in the company.
4 To inspect statutory books and constitutional documents
The Companies Act 2006 gives shareholders the right to ask to see a number of documents. For example, these include:
- The Register of Members (under section 116 of the Companies Act)
- The terms of directors’ service agreements (section 229)
- The terms of directors’ indemnity provisions (section 238)
- Records of resolutions and minutes of general meetings
Shareholders also have a right to access the company’s constitutional documents – usually made up of at least the memorandum and articles of association. As these documents may lay down additional rights of shareholders or restrictions on shareholders rights, it’s a good idea for all shareholders to look at them.
5 To any final distribution on the winding up of the company
If the company is wound up, creditors will generally all need to be paid first out of any funds available. If, however, there are then surplus funds, these monies can be shared amongst the shareholders – usually in proportion to the number of shares they hold. However, different share classes may have different rights to a distribution in these circumstances.
Alongside the rights of shareholders, there is some protection afforded to the owners of a company by the responsibilities of directors, which again have their origins in the Companies Act 2006.
In our next article we’ll look at the actions and remedies available to minority shareholders to help protect their interests.
Inform Direct is the innovative and easy way to manage a company's shares, make new share allotments, record share transfers and more.