Shareholders are enities (whether individuals, companies or trusts) that owns shares in a company. While they are not responsible for the day-to-day management of a company, they do retain certain rights and obligations in a company.
The rights and obligations of a shareholder in a company depends on a number of factors, namely:
- the type of shares a shareholder owns in the company;
- the terms of the company constitution;
- the ‘replaceable rules’ set out in the Corporations Act 2001 (Cth); and
- whether there is a shareholders agreement in respect to the company.
We set out below the most common rights and obligations of shareholders and how such rights and obligations are impacted by the above factors.
Right to vote
The right to vote is the most important right of shareholder. If you hold shares that entitle you to vote, you will be able to participate in the decisions made in respect to the company.
Shareholders are ordinarily able to vote to:
- appoint directors;
- change the structure of the company; and
- wind up the company.
However, as a shareholder, your right to vote will depend on whether you hold ordinary shares or preference shares in the company.
In order to determine whether you hold a right to vote, you should consider the terms of the company constitution. A company’s constition ordinarily sets out the rights and obligations attaching to each class of share.
If your shares entitle you to vote, you should consider the terms of the shareholders agreement (if applicable). A shareholders agreement will set out:
- which matters you are entitled to vote on; and
- the percentage of votes required in order to pass a resolution.
Right to attend meetings
As a shareholder, you also have the right to attend the Annual General Meeting (AGM). During an AGM:
- the directors of the company will present the company’s annual report;
- the directors and shareholders will discuss the company’s performance; and
- the shareholders will be able to ask questions of the directors.
If you hold a share that entitles you the right to attend meetings, you should consider the terms of the company constitution and shareholders agreement to see:
- whether you have a right to call a meeting of shareholders;
- the notice requirements before a meeting of shareholders can take place;
- the number of shareholders that need to be present in order to decide matters at a shareholder meeting;
- the number of votes that you can cast as a shareholder; and
- the types of matters that you can vote on.
Right to access financial records
Shareholders also have the right to inspect a company’s books and records.
The books and records of a company are ordinarily be kept at the registered office of the company.
Before you acquire shares in a company, you should consider:
- the manner in which you are able to inspect a company’s books and records; and
- whether you will receive periodic reports from the company.
Right to transfer shares in the company
As a share in a company constitutes an asset of the shareholder. As such, where you hold shares in a company, you will be able to transfer them to third-parties. However, regard should be had to the terms of the company constitution or shareholders agreement as they usually restrict a shareholder’s ability to transfer shares.
For instance, shareholders agreement usually require a shareholder to first offer shares in a company to the remaining shareholders before they can sell them to third-parties. If you want to sell your shares in a company, you should make sure that you are complying with the terms of the constitution and shareholders agreement as it relates to disposal of shares.
What obligations do shareholders have to a company?
Shareholders are not responsible for the company’s legal obligations or debt as companies are separate legal entities. As such, a shareholders:
- liability is limited to the unpaid amount of their shares; and
- obligations are expressed in the company constitution or shareholders agreement.
Generally, a shareholders agreement will impose obligations on shareholders which relate to:
- confidential information;
- disposal of shares;
- funding; and
- restraints and restrictions.
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