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What are the rights of a shareholder in a private limited company?
Many times I get asked the question, usually from minority shareholders, what are my rights as a shareholder?
There is a simple answer and a more complicated one.
In this article I will list the basic rights of a shareholder, usually referred to as personal rights, in a private limited company.
Right to be on the register of members.
A shareholder has right to have his name and shareholding entered on the register of members and to prevent unauthorised additions or alterations being made to the entry.
Right to Vote.
An important right of a shareholder is the right to vote. A shareholder has the right to vote at meetings of shareholders and also to appoint proxies to appear and vote on his/behalf.
Right to receive dividends.
Even though the power to distribute dividends rests with the board of directors of the company, the shareholder has the right to receive dividends once a dividend is declared or has become due under the articles of association.
Right to exercise pre-emption rights.
A shareholder has the right to exercise pre-emption rights over other members’ shares which are conferred by the articles of association. So in a private company a shareholder that wishes to sell his shares must offer them first to existing shareholders before he can sell them out to third parties.
Right for return of his capital.
Once a company is wound up, a shareholder has the right to have his capital returned in the proper order of priority in the winding up of the company or on a duly authorised reduction of capital;
Right to receive notices and financial statements.
A shareholder has the right to receive notices about the meetings of the members including the drafts of financial statements to be approved on such meetings;
Right to stop illegal acts.
The shareholder has the right , under certain conditions, to stop the company from doings illegal acts or acts which are ultra vires.
Right to speak.
A shareholder has the right to have a reasonable opportunity to speak at meetings of members and move amendments to resolutions proposed at such meetings;
Right to call a meeting.
The articles of association of a company usually have provisions that allow shareholders to call an extraordinary general meeting subject to the minimum shareholding requirement;
Right to sell or transfer his shares.
A shareholder may have the right to transfer by way of gift his shares to his children or spouse. In addition he has the right to sell his shares subject to pre-emption rights mentioned above.
Right to inspect.
A shareholder has the right to inspect various documents and registers kept by the company;
Right to have a share certificate.
A shareholder can ask and obtain from the company a share certificate issued to him in respect of his shares.
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