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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Legitimate rights of minority shareholders

Legitimate rights of minority shareholders

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Letter

Most companies treat minority shareholders as if they have no rights at all. Company directors receive all the perks and benefits. They receive salaries, bonuses, cars, and all the expenses, even for the maintenance of their domestic staff including the hauffeur. In addition, there are those regular ‘parties’ in 5-star hotels in the guise of ‘conference’ or ‘seminars’, in spite of having ample space in their own company premises. All such expenses are borne by the company, thereby eroding the shareholders’ benefits.

A minority shareholder is also a member of the company and he is entitled to all the rights spelt out in the Companies Act, the Memorandum and the Articles of Association. If the share market is to be activated, it is imperative that the minority shareholder be adequately protected. In these circumstances, there is an urgent need to form a Shareholders’ Association.

The Companies Act provides for over 150 offences. Most shareholders are unaware of their rights while the directors and majority shareholders have a field day at the expense of the minority shareholder.
The rights of minority shareholders are briefly described as follows:

A. Statutory Rights:
These are rights which are conferred on members by the Companies Act. These rights cannot be taken away by the memorandum or the articles.

Statutory rights include the rights to:
a. Have shares offered on a priority basis in case of increase of capital.
b.Receive notices to attend and vote at meetings.
c. Transfer shares.
d. Receive a share certificate.
e. To receive a copy of annual accounts of the company.
f. Inspect the register, e.g. members, annual returns.
g. Appeal to the Registrar to call an AGM where the board of directors has failed to do so.
h.Appeal to the company board to call a special meeting of the company.
i. Participate in the appointment of directors/auditors at the AGM. Appeal to the Registrar to order an investigation into the affairs of the company.
j. Petition the High Court for relief in case of oppression and mismanagement.
k.Petition the court for winding up of the company.

B. Documentary Rights:
There are rights given to the members by the memorandum of articles.

C. Legal Rights:
Rights which are given to the members by the general law, e.g. mis-statement or concealment of a material fact in the prospectus, a person who has been allotted shares can avid the contract and claim damages under the general law.

D. Proprietary Rights:
These include:
1. The right to participate in the distribution of dividends proportionately.
2. The right to participate in the distribution of assets when the company goes into liquidation.
3. Right to equality and honesty by directors and the majority shareholders in corporate transactions affecting his/her interest e.g. issue of new shares or amending the articles.
4. Right to be registered as a shareholder.
5. The privilege of immunity of personable liability of company’s debts.

E. These include:
1. The right to information and inspection of a company’s records.
2. The right to bring representative suits on a course of action on behalf of the company to prevent or remedy mismanagement or unauthorised acts and to compel the company to enforce his/her rights.

F. Common Law

Remedies:
Equitable and statutory remedies for infringement of individual rights.

Gamini Amarasekera
Colombo 2
http://www.sundaytimes.lk/130317/business-times/legitimate-rights-of-minority-shareholders-36586.html

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