Shareholders Rights and Duties
Company Law
Part 1
Shareholders Rights:
•Shares generally rank pari passu but may be issued “with such preferred, deferred or other special
rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the
company may from time to time by ordinary resolution determine” (s.66(3))
Pari passu – all equal and on the same footing
Company dissolved and surplus left over after you pay off the creditors, employees and everyone else
the money will be split equally amongst the shares – not meaning shareholders, some shareholders may
have more shares – but will rank pari passu.
•Right to Dividend when declared (in a going concern - viable, valid and still going on)
- Dividend can only be declared if the company is a going concern, a dividend can only be
declared out of distributable profits, meaning if the company is going badly you're making
losses, you can declare a dividend to your shareholders because you have no profit to use for
this dividend
- Only profitable companies and companies that have what we call distributable profits, namely
profit one year, but made a loss 10 years running then that is not a distributable profit because
you're still trying to get back in neutral footing
- Directors declare dividends, whether it will happen and how much it will be of the profit
- Once declared, you have accrued a right to that, legitimate expectation, now you have a right to
it, cannot change mind, you can sue directors to make sure you are paid your dividend.
- Exceptions: covid-19, if a board of directors had declared dividend and when covid hit they may
say its not viable and companies act given a temporary exception. Could rescind their
declaration.
- Not any right until dividends until it is declared!
•Right to Attend and Vote at meetings – annual general or egm,
•Participate in distribution of assets upon winding up
- Anything left over when it winds up, you have a right to whatever is left over, your share
•Statutory rights to notices, information and relief
- Notices of certain transactions, shareholdings being bought up, notices of a meeting going on
- Right to companies' annual reports, statements by the directors and so on
- EU Rules; shareholder engagement and transparency, shareholder engagement is only
worthwhile if those shareholders are informed
•Prima facie right to transfer shares
- Default position, property you can sell to whom you chose
, - Exception: pre-emption rights must go to existing shareholders.
- Property transfer can be reviewed by the courts.
Class Rights
Shares can be in different classes and different classes of preferred shareholders, these rights can be
varied through a particular procedure, but typically the votes of the holders of those class rights of
preferred shares a to vary the rights of preferred shares a then we must vote amongst ourselves, the
other shareholders cannot change the rights of shareholders whose group they are not a part of
•Special Procedure for Variation of Class rights (s.88)
Procedure depends on manner of attachment of rights and nature of the variation requirements
e.g. If rights are attached by constitution and it does not provide for variation, those rights may be
varied if all members agree (s.88(5))
•Right to object (s.89)
•Shareholders voting at a class meeting must have regard to the interests of the class as a whole
Differential Voting Rights (Dual Class Shares)
Particular shares get more voting powers than others, defining feature of digital companies such as
facebook
Mark Zuckerberg – CEO/Chairman
Shares he has get more power than others common in tech companies because they are often reliant
on one individuals vision rather than several – his company his idea, investors are fine with
zuckerbergs free reign, his idea who are we to step in.
Investors happy to be involved as tech is the big thing
Shareholders: Mutual fund holders (45.91%), Other institutions (33.57%) and Individual stakeholders
(2.29%)
Dual-class stock: CEO controls 57.9% of the total voting shares
London stock exchange only recently started to accept these shares, before that they would be subject
to certain limitation or you would not be considered a premium company in the eyes of the stock
exchange through a variety of reasons and one being the advanced attack, the other brexit and the kind
of business in London, however they have carved into pressure to allowed these kinds of structures.
Cons: misalignment of incentives
Company Law
Part 1
Shareholders Rights:
•Shares generally rank pari passu but may be issued “with such preferred, deferred or other special
rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the
company may from time to time by ordinary resolution determine” (s.66(3))
Pari passu – all equal and on the same footing
Company dissolved and surplus left over after you pay off the creditors, employees and everyone else
the money will be split equally amongst the shares – not meaning shareholders, some shareholders may
have more shares – but will rank pari passu.
•Right to Dividend when declared (in a going concern - viable, valid and still going on)
- Dividend can only be declared if the company is a going concern, a dividend can only be
declared out of distributable profits, meaning if the company is going badly you're making
losses, you can declare a dividend to your shareholders because you have no profit to use for
this dividend
- Only profitable companies and companies that have what we call distributable profits, namely
profit one year, but made a loss 10 years running then that is not a distributable profit because
you're still trying to get back in neutral footing
- Directors declare dividends, whether it will happen and how much it will be of the profit
- Once declared, you have accrued a right to that, legitimate expectation, now you have a right to
it, cannot change mind, you can sue directors to make sure you are paid your dividend.
- Exceptions: covid-19, if a board of directors had declared dividend and when covid hit they may
say its not viable and companies act given a temporary exception. Could rescind their
declaration.
- Not any right until dividends until it is declared!
•Right to Attend and Vote at meetings – annual general or egm,
•Participate in distribution of assets upon winding up
- Anything left over when it winds up, you have a right to whatever is left over, your share
•Statutory rights to notices, information and relief
- Notices of certain transactions, shareholdings being bought up, notices of a meeting going on
- Right to companies' annual reports, statements by the directors and so on
- EU Rules; shareholder engagement and transparency, shareholder engagement is only
worthwhile if those shareholders are informed
•Prima facie right to transfer shares
- Default position, property you can sell to whom you chose
, - Exception: pre-emption rights must go to existing shareholders.
- Property transfer can be reviewed by the courts.
Class Rights
Shares can be in different classes and different classes of preferred shareholders, these rights can be
varied through a particular procedure, but typically the votes of the holders of those class rights of
preferred shares a to vary the rights of preferred shares a then we must vote amongst ourselves, the
other shareholders cannot change the rights of shareholders whose group they are not a part of
•Special Procedure for Variation of Class rights (s.88)
Procedure depends on manner of attachment of rights and nature of the variation requirements
e.g. If rights are attached by constitution and it does not provide for variation, those rights may be
varied if all members agree (s.88(5))
•Right to object (s.89)
•Shareholders voting at a class meeting must have regard to the interests of the class as a whole
Differential Voting Rights (Dual Class Shares)
Particular shares get more voting powers than others, defining feature of digital companies such as
Mark Zuckerberg – CEO/Chairman
Shares he has get more power than others common in tech companies because they are often reliant
on one individuals vision rather than several – his company his idea, investors are fine with
zuckerbergs free reign, his idea who are we to step in.
Investors happy to be involved as tech is the big thing
Shareholders: Mutual fund holders (45.91%), Other institutions (33.57%) and Individual stakeholders
(2.29%)
Dual-class stock: CEO controls 57.9% of the total voting shares
London stock exchange only recently started to accept these shares, before that they would be subject
to certain limitation or you would not be considered a premium company in the eyes of the stock
exchange through a variety of reasons and one being the advanced attack, the other brexit and the kind
of business in London, however they have carved into pressure to allowed these kinds of structures.
Cons: misalignment of incentives
