How do Shareholders Govern?

A shareholder of a company  can be an individual, company, or institution that owns at least one share of a company and therefore has a financial interest in its profitability. Generally, shareholders own a company but have very little to do with day-to-day management.

The money that is invested in a company by shareholders can be withdrawn for a profit. It can even be invested in other organizations, some of which could be in competition with the other. Therefore, the shareholder is an owner of the company, but not necessarily with the company’s interests first.

Shareholders have the right to vote on certain matters with regard to the company and to be elected to a seat on the board of directors.

How do shareholders actually govern?

The shareholders’ role in governance is to elect directors and auditors. They can then,  having put the right people in place, hold the board accountable for the proper governance of the company.

Shareholders, in general meeting, are entitled to exercise all the powers which are not expressly or impliedly conferred on the directors by the Companies Act, the company’s Memorandum of Incorporation or, in case of a private company, the shareholders’ agreement. Unless the Memorandum of Incorporation or the Shareholders’ agreement in the case of a private company, reserves the authority for certain decisions to the shareholders, shareholders ’rights are strictly limited.

The shareholders have no:

  • Right to choose the CEO;
  • Right to insist on the payment of a dividend;
  • Vote to change the company’s line of business;
  • No right to prevent the directors from wasting money on:
    • Charitable contributions
    • Supporting political parties
    • Employee benefits
    • Luxury cars and holidays

How do you protect yourself as a shareholder? We will cover this in the next addition.

Article contributed by Excceed Finance.