What are the rights and responsibilities of shareholders?
A limited company shareholder will have the below rights and responsibilities:
- Getting at least one share in a limited company.
- Agreeing to provide the value of their shares if a company is unable to pay its creditors. This is known as ‘limited liability’.
- Right to change the company name
- Right to change the company structure
- Allowing rights and powers to company directors
- Issuing more shares after company formation
- Transferring shares to other people
- Appointing and removing directors
- Changing the prescribed particulars of rights attached to shares.
- Receiving company profits (dividends payments) in relation to the number and value of their shares
- Approving substantial investments
Following are the rights attached to ordinary shares
Most of the new companies issue ‘ordinary shares’. Each one carries the same rights, including:
- Right to dividends (a share of business profits)
- Right to direct one vote at general meetings
- Right to get a distribution of remaining capital if the business is wound up
- Right to access to the memorandum and articles of association
- Right to access statutory registers, in accordance with the Companies Act 2006
When several share classes are issued, the rights of shareholders’ become much more complicated. In such instances, having an agreement is even more important.
Rights of minority shareholders
Minority shareholders (those who own less than 50% of the issued share capital of a company) have little control over the management and direction of the company. By voting power of majority shareholders, the cumulative strength of their votes can be cancelled. An official shareholder agreement is the most effective way to secure the minority from an unfair monopoly.
The financial liability of shareholders
Can a shareholder be a director of the company as well?
Are the details of the shareholders displayed on the public record?
Can a new shareholder be added after incorporation?
There is no legal limit to the number of new members after company formation. This can be achieved by moving existing shares from a current shareholder to someone else, or by issuing new shares ("allocation") to sell to new members. As long as the articles of association do not include a provision of authorized share capital, you can issue as many additional shares at you like.
Transferring shares depends on whether the company has any existing shares to transfer. In most cases, directors have the right to transfer and issue shares, but it is possible to limit the director’s powers in the articles.
If the articles of association include any provision preventing a director from approving a transfer or allotment, the existing member must pass a resolution to permit the action. There may also be a clause in the articles or an arrangement between investors that provides existing members with' pre-emptive protection.'
Pre-emptive rights refer to a ‘first-refusal’ clause that permits existing owners to take additional shares before they are offered to outside investors. It protects their rights and prevents their proportion of ownership from being wrongly diluted.
Do you require a shareholders’ agreement?
Having the shareholders’ agreement is not a legal requirement. But for a limited company with more than one shareholders, it is highly recommended. It is a legally binding private agreement among shareholders that expands on the Companies Act 2006 and the articles of association. This specifies the basic rights and responsibilities of leaders and employees, the way to manage the business.