Shareholders, their rights and duties.

One of the most basic concepts taught in the field of commerce and business studies are the various ‘forms of business organizations’. They include - sole proprietorship, partnership firm, Hindu Undivided Family, joint-stock company, etc. A joint-stock company is commonly known as a ‘company’. As every business has a basic requirement of capital, the amount of such capital and the providers of capital differ in size and number respectively according to the form of business organization.  Generally, a company form of business requires a large capital in comparison to a proprietary concern or a partnership firm. Since many persons contribute capital to a company, each part so contributed is called a ‘share’, and the person so contributing is called a ‘shareholder’. Such a share of capital from each shareholder is collectively known as ‘share capital’. We shall further take an overview of the meaning of the company, the kinds of share capital, and the benefits attached to the corresponding shareholders.

             The word ‘company’ has been derived from the Latin word ‘com’ which means ‘with or together’ and ‘panis’ which means ‘bread. In a literal sense, it means a group of persons having their meal together. In ancient times traders and merchants used to often come together on various occasions to discuss their business affairs and ideas. This led to the concept of a ‘company’ gain more popularity.

                A company has various stakeholders such as shareholders, debtors, creditors, and also the government which regulates the functioning of a company through various laws. The intent of each such stakeholder is to deal fairly with the company and avoid any sort of malpractice that could bring disrepute to the company. That is why every stakeholder, especially the shareholders have certain duties towards the company which they need to fulfil to protect their interest and that of the company as well.

        We shall further take a look at the rights available to and the duties expected to be performed by the shareholders of a company in accordance with the provisions of Indian company law.

What are the Rights of shareholders.?

If we study the company law in-depth, we can come across many rights available to the shareholders of a company. However, some common rights which are frequently exercised by shareholders are enlisted below.

1) Voting right at the general meetings of the company:

             A company calls a meeting of shareholders called the general meeting wherein the state of affairs of a company are displayed to the shareholders and decisions on the proposed business items are taken at such meeting. The shareholders convey their assent or dissent through the power of voting at the meeting. The voting power of a shareholder is based upon the number of shares held by him since 1 share equals 1 vote.

             Shareholders can exercise their voting rights through various means available under the Act from Section 107 to Section 110. They are - voting by show of hands,  electronic means, demand for poll, voting through postal ballot.

             Shareholders may attend the general meeting of the company either in person or by way of proxy. 

2)  Appointment of directors:

            In spite of shareholders being the owners of a company, it is not possible for them to participate in the day to day affairs of the company. Hence, they appoint such persons who are skilled and responsible enough to handle the management of the company and are called ‘directors’. Since a group of such persons comes together to manage the company, they are collectively known as the ‘ Board of Directors’.

            Pursuant to Section 152, the appointment of directors shall be done by the company in the general meeting which means that only the shareholders are empowered to appoint directors in the general meeting. A company has various types of directors such as alternate directors, additional directors, small shareholders directors, independent directors, etc. The appointment of such directors shall take effect only after the shareholders approve their appointment in the general meeting.

3)  Appointment of auditors :

             An auditor is a person who checks whether the financial statements of a company show a true and fair view and form an opinion regarding the same. This enables the auditor to detect frauds and errors if any in the financial statements. Thus an auditor is an independent person not related to the company. However, the appointment of such an auditor is made by the shareholders themselves at the general meeting of the company. The provisions with respect to the appointment of auditors are given under Section 139.

4) Right to call for general meetings :

             Every company, other than One Person Company (OPC), is bound to comply with the provisions relating to the general meeting under Section 96. However, on failure to do so, the shareholders are empowered to apply to the National Company Law Tribunal (NCLT) under Section 97 for directing the company to convene the general meeting.

            Also, the shareholders can request the Board of Directors to call for an Extraordinary general meeting (EGM) under Section 100 and on the failure of the Board to do so, they may call for an EGM by themselves to decide upon any special matter of business concerning the company.

5) Right to inspect the books and registers of the company:

           Shareholders being the most vital stakeholder in a company have the right to inspect the books and the registers required to be maintained by the company under the Act.

6) Right to receive notice and agenda of the general meetings, copies of the minutes of such meetings, copies of annual financial statements, and annual reports.

 What are the duties of shareholders?.

Certain duties which the shareholders of a company are expected to perform are :

-  Timely payment of call money demanded by the company on the shares held by them.

-  To invest capital in the company without any unlawful manner and malafide intentions.

- To furnish necessary information asked by the company to comply with the provisions of the Act.

- To provide timely suggestions to the Board of Directors of the company which may help in its smooth functioning.

- To exercise the aforementioned rights in a fair and just manner.

           Going by the general understanding of the meaning of shareholders of a company and the rights and duties available to them in pursuance of the Companies Act, 2013 it can be said that every person investing his/her funds in a company for holding shares of such company must get acquainted with the aforesaid rights and duties. This would help them in making informed investment decisions and this could also educate them as investors. Also, nowadays many young investors perceive it as an investment option to invest their funds in companies in exchange for their shares. This makes the knowledge of shareholders’ rights and duties to be even more important for them so that they stay away from any form of malpractice or falling prey to fraudulent activities.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.