The ordinary shareholders are having the following rights in respect of shares held by them:1. Right to vote:As the ordinary shareholders of a company are its owners, they are entitled to elect the board of directors.
The board, in turn, select the management and management actually controls the operations of the company. This right to vote is not confined to mere election of directors; however, it covers a large number of issues like the amendment of memorandum of association or articles of association, adoption of the schemes of consolidations and mergers, alteration of the authorized capital, etc.2. Right to income:The ordinary shareholders are entitled to share in the earnings of the company only if cash dividends are paid. The declaration of cash dividends depends entirely upon the board of directors. This aspect reveals the basic difference between the rights of an ordinary shareholder and rights of a creditor.
In case the company fails to pay the contractual interest and principal repayments the creditors can take legal action to assume that payment is made or the company is liquidated. Ordinary shareholders, on the other hand, have no legal recourse to a company for not declaring cash dividends or for not distributing the profits. They are entitled for cash dividends only when it is recommended and declared by the board of directors. However, if the management, the board of directors or both are engaged in fraud in not declaring cash dividends the shareholders can take their case to the court and force the company to pay the dividends.3.
Right against ultra vires acts of the company:The management or board of directors is empowered to carry on only such acts or operations specified in the memorandum of association of a company. If they perform any act or operation beyond this memorandum is considered as ultra wires acts. These ultra wire acts are a breach of the agreement between the company and the shareholders. Therefore, a shareholder may properly bring legal action in order to prevent the companies from engaging in them.04. The preemptive right:This right gives the first option to existing shareholders to buy additional issues of shares in proportion to their existing holdings.
The purpose behind this right is to preserve and protect the interest of shareholders in the assets and control of a company. In its absence, a group of persons having vested interests could sell additional shares to themselves in order to swing the balance of control in their favor.05. Right to transfer the shares:The shareholders are always at liberty in a public limited company to transfer their holdings to anyone.
The facilities provided by the stock market for prompt purchase and sale of securities enable the dissatisfied shareholders to convert their shares into cash.06. Right to have knowledge of corporate affairs:The equity shareholders have got the fundamental right of being informed about the various developments in a company at least once in a year. They can give proper outlet to their grievance at the annual general meetings of the company.07.
Miscellaneous rights:Besides the above right the shareholders have the privilege of participating in exceptional profits to their respective holdings in share capital. Moreover, at the time of voluntary or involuntary liquidation of the company they have a right to proportionate share in the net assets available for distribution.The above list of rights is not exhaustive one and it gives only the more important rights. Further the mere inclusion of rights in the corporate law does not protect the interest of the equity shareholders. The above rights can be of practical utility only when the shareholders are well enlightened and informed about the affairs of the company and take pains to be active and cautious.
