What are my Shareholder's Rights? Know Your Shareholders Right.

Ryan Patrick

Mar 22, 2024 • 8 min read

As a shareholder in a company, you have some legal rights as a result of owning shares within the company. However, the right you have most times depends on the number, class, and value of shares you own.

Nevertheless, all shareholders within a company have some rights as outlined in the Companies Act 2006, Articles of Association, and Shareholder Agreement.

Knowing what these rights are and carrying them out as required is important to your organizational long and short-term goals. We will therefore walk you through all you need to know about shareholder's rights in this guide.

Who are Shareholders and What are Shareholders Right?

Shareholders are individuals, groups, partners, or organizations that own shares in a company. They are often called members and they are typically the owner of a company. Shareholders of a company can be just one and can also be as many as possible. The number and value of shares owned by every member of a company differs and this consequently influences the rights they have within such a company.

What are Shareholder's rights?

Shareholder rights are the legal rights and obligations that a shareholder could exercise within a company by virtue of owning shares within the company. It refers to the power granted to members of a company as a result of being a shareholder of a company.

Such includes the right to vote and attend meetings, the right to appoint and remove a director, the right to inspect company and constitutional documents, and many more.

Shareholders within a company hold varying values of shares and this influences the rights they have in a company. In the other sections of this post, you will get to understand the general rights of all shareholders and the specific ones that are based on the number of shares owned by members.

General Rights of All Shareholders

Every shareholder within a company is obligated to the general rights below and can therefore carry them out.

1. Attending general meetings and voting

Every shareholder has the right and is expected to attend the company general meeting. Usually, a notice would be given or distributed to the shareholders before the meeting date. As opposed to the shareholders, directors aren’t obligated to receive notice of general meetings.

Shareholders also have the right to vote in meetings and they can vote for or against a resolution. Alternatively, they could also appoint a proxy who would speak and vote on their behalf in meetings.

Voting rights of all members during a meeting, special or ordinary resolution, and written one depends on the number and value of shares held by each shareholder. However, shareholders with non-voting shares aren’t expected to exercise any voting rights. While some members have one voting share, some have multiple and this has definitely affects their voting rights.

It is a legal right for all shareholders to receive a part of the company’s profit. A company can decide to pay shareholders by means of dividends which can only be paid from the profits generated by the company. Shareholders don't have an outright right to vote to be paid above the amount suggested by the directors. However, they can vote to reduce it if they feel that the profit distribution can have an outward effect on the company’s financial standing.

Usually, all shareholders' dividends will be paid equally based on the number and value of shares they own. However, there could be some variations in situations where a class of shares doesn’t have the right to dividend payment or when certain criteria must be met before dividends can be paid.

3. Inspecting constitutional and company documents

All shareholders have the right to inspect constitutional and company documents. These documents include a register of members, articles of association, and company agreements. Directors service agreement, minutes of general meetings, indemnity provisions, memorandum of association, record of resolutions, and so on.

Apart from all that, essential documents like the company’s annual reports and accounts should be provided for inspection by the shareholders. Any other documents that show updates about the company can also be provided on request.

It is important to note that while it is not a necessity for shareholders to go through all of these documents, most companies do issue them. However, some crucial documents like resolutions, annual reports, and the register of members are required to be inspected by shareholders.

4. Winding up

If a situation warrants that a company winds up, there are still some reserved rights on how the company's remaining funds will be shared. At first, the company will be required to pay up all the creditors. The remaining funds then can be distributed to the shareholders, meaning that shareholders have the right to receive a part of the company’s funds and assets in cases when the company is no longer running. These funds will thus be shared according to the number and value of shares held by each shareholder. However, it is crucial to note that different shareholders will have varying rights to funds distribution during winding up.

Once an individual has contributed their share to the company and become a shareholder, they have the legal right to receive the share certificate. This could be in electronic or paper form and must be received by the shareholder within two months of joining the company. When new shareholders join the company, they also have the right to be added to the member's register and to receive a share certificate.

6. Right to ownership of the company

As soon as you contribute your share to the company and you are legally recognized as a company’s shareholder, you hold the right to be part of the owners of the company. As such you could expect that you own a part of everything that comes from the company. If the company goes smoothly and high profits are generated, you have the legal right to receive more benefits that are commensurate with the number and value of shares that you own. On the other hand, if the company is at its striving stage, you also have ownership of that and must be willing to deal with it.

7. Right to bring claims against a director

Shareholders also can bring claims against a director on behalf of the company if necessary. If a director goes against a company’s rule, refuses to perform their duty, or is found guilty in any way, they may be expected to face claims brought by the shareholder.

Apart from that, shareholders have the reserved rights to write to court if there are some defaults. Such cases are if members or part of the members feel the company’s management and affairs had been handled in an unfair manner or if a proposed action would ultimately be prejudicial to the company.

8. Appointing proxies

Shareholders have the legal right to appoint a proxy to represent them in general meetings. The proxy thus has the legal right to carry out the necessary action as being appointed to them. They could vote, speak, and make important contributions during meetings.

9. Inspecting director's contract

As part of the rights of the shareholders, they can inspect the service contract of a director in their company. Alternatively, they can also have a thorough go-through of the memorandum explaining the terms and conditions of the director's contract.

10. Right to ensure that the company is being run lawfully

Shareholders are the owners of the company and thus they have the legal right to ensure that the company affairs are run lawfully. Although the directors are known to look out for the smooth running of day-to-day activities of the business, the shareholders still have the right to ensure that things are done lawfully. They can therefore investigate to know if the company complies with the laws of the Companies Act, rules and regulations contained in the company agreement, and so on.

Specific Rights of Shareholders Based on their Shareholdings.

Based on the percentage of shareholding of each shareholder, they do have specific rights within the company. This section will outline the specific rights of shareholders based on the percentage of shares they own in the company.

1. Shareholders with at least 5% shares

Written resolution: A member can pass a written resolution if they have at least 5% of the company’s shares. A written resolution does not require meetings but can be passed in writing. Such members can use the written resolution to pass an ordinary or special resolution.

General meeting: Shareholders with 5% shares can also make a request to call a general meeting. With this, the member can inform the director who will pass the meeting request to other members.

2. Shareholders with at least 10% shares

Demanding a poll and audit: This shareholder could demand a poll for a proposed resolution. They can also demand an audit to be done with respect to the company's financial account over the period of a year.

3. Shareholders with more than 10% shares

Blocking short-notice meetings: These members have the right to block meetings that have been organized to be held on short time notice. Usually, there is a statutory amount of notice period before the meeting can be done. A shareholder with more than 10% shares can prevent such a meeting.

Blocking squeeze out: Selling of shares of minority members can also be prevented by shareholders with more than 10% shares.

4. Shareholders with at least 15% shares

Class right variation: In situations where there is a proposal on making variations to the class right of shares, shareholders of at least 15% shares of the class of shares can appeal to the court to cancel the variation.

5. Shareholders with more than 25% shares

Blocking special resolutions: For a special resolution to be passed, 75% of voting shares must vote for or in support of the proposed resolution. A member with a 25% voting right can block such a resolution from being passed.

Disagreeing to a scheme of arrangement: a scheme of arrangement is a legal process in which a compromise is attained between a company and the shareholders or creditors for the sole aim of restructuring finances. Shareholders under this category can block such arrangements.

6. Shareholders with at least 50% shares

Blocking ordinary resolutions: Members under this category can easily prevent an ordinary resolution from being passed. Since an ordinary resolution requires more than 50% voting shares for it to be passed, members holding at least 50% shares can easily block an ordinary resolution from being passed.

8. Shareholders with more than 50% shares

Passing ordinary resolution: Once a shareholder has more than 50% shares, they can easily pass an ordinary resolution. Since an ordinary resolution also requires more than 50% voting shares for it to be passed, then this category of shareholders can easily pass an ordinary resolution.

9. Shareholders with at least 75% shares

Passing a special resolution: A special resolution can only be passed if 75% of voting shares agree to a proposed resolution. With that, a member with not less than 75% shares can pass a special resolution.

10. Shareholders with at least 90% shares

Passing short notice meeting: For a private limited company, members with 90% shares can call for a meeting within a short notice period that is less than the statutory notice time. In public limited companies, 95% is required.

Passing squeeze out: A member with more than 90% can allow or force the sale of a minority member’s shares.

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Conclusion

Understanding your rights as a shareholder of a company is crucial because it helps you familiarize yourself with the powers that you can exercise within a company. As much as the company's success and failure have a direct effect on you as a shareholder, then you must know your rights within a company. You can always reach our expert here if you have any questions you need help with.