What are my entitlements as a company shareholder?
Mar 9, 2018
Buying a shareholding in a company makes you a part-owner. It entitles you to share in the business’ fortunes and, at the same time, imposes only a limited liability in respect of its losses.
There are other lesser-known entitlements that all shareholders should be aware of. They relate to the proper management of the company; after all, it’s in every shareholder’s interests for the business to run smoothly and profitably. And while day-to-day affairs will usually be beyond the scope of a shareholder’s role, the overarching need for transparency, sound decision-making, and responsible corporate activity should be high on each shareholder’s agenda – although in reality, not all shareholders take as active a role as they could in all of this.
But the point is that these rights are there for the taking. They’ll vary; the precise rights that attach to each shareholding will differ from person to person, or category of shareholder. So you have to examine the company’s official documents – more particularly, its articles of association, shareholder agreements, and any resolution relating to the issuing of shares – as well as the Companies Act, to establish individual entitlements.
The most common types of shareholder rights include the right to share in the company’s profits; to inspect company documents; to receive a copy of the company’s annual accounts; and to attend and vote at certain meetings. These are standard. And the rights become more extensive as the shareholding increases. So, for example, a person (or a group, together) holding at least a 5% shareholding can call a general meeting; those holding more than 10% in a private company can prevent a meeting being held on short notice; and someone holding more than 25% can prevent certain special resolutions being passed.
Far from being a formality, the allocating of shares and associated rights is something that a company should plan very carefully. By the same token, anyone looking to buy shares should take legal advice on the proposed terms. Are they legally compliant? Are they commercially viable? Could a better arrangement be negotiated?
Those are questions that our corporate lawyers help clients answer before committing to a shareholding. Because, as well as advising companies on their share schemes, we help individuals understand their rights. And where those rights are not being honoured, or where there is some other shareholding issue that needs to be resolved, we’re quick to step in.
Contact a member of our corporate and commercial team today on 01264 353411, email: firstname.lastname@example.org or fill in our no obligation, online enquiry form and someone will be in touch shortly.
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