Listed and Unlisted Companies Shareholders
When you buy a share in a company, you become a part owner of that company under company law; this ownership entitles you to certain rights. Some of these rights relate to financial aspects of owning shares, and some relate to the communications between the company and the shareholder, including the actions you can take to make your views known on the company's performance and actions.
The rights, inter-alia, include the following:
Rights Issues - A Right in Capital Increases:
From time to time, a company may wish to issue further capital. As a shareholder you have a pre-emptive right to participate in a Rights Issue. This is where the company asks existing shareholders if they want to buy new shares in the company in proportion of the existing shares held by each member, irrespective of the class of shares. Such offer is made by a notice sent to members specifying the number of shares to which the member is entitled and prescribing time limit within which if offer not accepted will be deemed to be declined. The company sends prescribed circular to the members along with the notice making the said offer. [Section 86(11, (3) of the Ordinance]
If they decline to subscribe for the further issue or make no response to the issue, the directors may allot the shares to that extent, as they deem fit.
Right to a Share in the Profits - Dividends:
As a shareholder you have a right to a share in the company's earnings. This is called dividend and is the share in net profits that is distributed to shareholders. This share varies according to the results of the company. Dividends are paid out to all registered shareholders. If you hold preference shares you will usually get a fixed dividend, which will take priority over payments of dividend to ordinary shareholders.
The board of directors recommends the dividend, and submits the same to the shareholders for approval in its general meeting. Dividend is declared by the members in a general meeting, being a part of the meeting's agenda. However no dividend shall exceed the amount recommended by the directors.
Participation in a Company's General meetings:
Shareholders should be informed of the rules, including voting procedures which govern general meetings. Shareholders should be given;
Sufficient and timely information about the date, location and agenda, including the issues to be decided at the meeting. Notice of the general meeting, specifying the day, time and place of the meeting and a statement of the business to be transacted with all material facts, is required to be sent to every member of the company at least 21 days before the meeting. Where any business other than ordinary business that is any special business is to be transacted at a general meeting, a statement setting out all material facts concerning such business, including in particular the nature and extent of the interest of any director, is also enclosed with the notice. In case of listed companies, notices are also published in English and Urdu newspapers having circulation in the Province where the relevant stock exchange exists. Opportunity to place items on the agenda of meetings, subject to reasonable limitations.
Right to Elect and Remove Directors:
Shareholders have a right to elect the directors. The shareholders, as owners of the company, elect the directors to run the business on their behalf, and hold them accountable for their acts. First directors are usually appointed by virtue of Articles of Association or otherwise, all the subscribers are deemed to be directors of the company. They shall hold office until the holding of first AGM. Subsequent directors are elected in the AGM of the company for a period of three years.
The shareholders can also remove a director by passing a resolution in a general meeting.
Right to Appoint and Remove Auditors:
Auditors are external accountants appointed by the company to check its financial statements. The directors appoint first auditor or auditors within sixty days of incorporation, subject to certain provisions, who stands retired at the conclusion of the first AGM. However, if the directors fail to appoint first auditor or auditors, the members in general meeting may appoint first auditor or auditors. Thereafter, members at each AGM appoint the auditor or auditors.
The remuneration of the auditor or auditors appointed by the members is also fixed by the members in the general meeting. Members can remove the auditors or auditors through passing of special resolution in a general meeting in accordance with the procedure laid down.
Right to Contest for Election to the Board of Directors:
A member has the right to contest for election as a director of a company subject to basic conditions for the office of directorship of the company.
Right to Residual Assets at the Time of Winding Up:
Winding up of a company refer to the process whereby all the affairs of the company are wound up, all its assets are realized, its liabilities paid off and the balance, if any, is distributed to its shareholders in proportion to their holding in the company A liquidator is appointed who takes control of the company, collects its debts and distributes any surplus amongst the members proportionate to their shareholding. It is a basic right of the shareholders of a company to receive their share of the residual assets at the b me of winding up in proportion to their holding in the company.
Right to Receive, or Obtain Copies of Annual Accounts:
Every company is required to send copies of annual accounts to the members at least 21 days before the AGM at which the accounts are required to be laid before the members.
Shareholders of a company are also entitled to obtain copies of audited financial statements along-with auditor's report and director's report on payment of such amount as fixed by the company.