A shareholder is an individual person or legal entity (e.g. through a private limited company or LLP) who legally owns one or more shares in a company. Shareholders are also sometimes referred to as “members” of the company. They provide financial backing in return for potential dividends over the lifetime of the company. Simply put, the shareholder is the owner of the company. They are the ones whom the board of directors owe a duty to such as to manage the company in the best interests of the shareholders.
Tips No.1: Directors are not necessarily owners of the company, but shareholders are definitely owners of the company.
Some people may think that shareholders do not play a big part in the running of a company other than providing financing to the company. Well, that perception is wrong. Shareholders do play an important role in relation to their control over the company.
Tips No.2: Shareholders do not manage the day to day business of the company. They appoint directors to carry out the daily operations of the business. However, for many SMEs in Malaysia, it is common to find shareholders appointing themselves to be the directors of the company.
So, what are the roles and rights of a shareholder in a company?
Roles of a Shareholder
We list out below some of the examples where a shareholder needs to play his role in the company:
- issuance of additional shares of the company;
- appointment or removal of company directors by way of an ordinary resolution;
- approval of directors’ remuneration (for public company);
- appointment or removal of auditor (for public company);
- amending and changing the company constitution (in which case a special resolution of 75% or more of all shareholder votes would need to be obtained);
- in instances where any arrangement or transaction exceeding RM 250,000 or 10% of the net asset value of the company between the company and:
- a director of the company;
- a substantial shareholder of the company, its holding company, or its subsidiary; or
- a person connected to such director or substantial shareholder, involving the acquisition or disposal of shares or non-cash assets from or to the company,
the director or substantial shareholder in question must abstain from voting in the meeting in such a case;
- allowing or rejecting any arrangement or transaction involving the acquisition or disposal of substantial property or undertaking of the company;
- declaring a dividend;
- approving the financial statements of the company;
- winding up of the company by way of voluntary liquidation;
- allowing or rejecting alteration or reduction of share capital of a public company.
Rights of a Shareholder
Subject to any shareholders’ agreement agreed amongst the shareholders, a shareholder has the following rights, such as to:
- attend, participate and speak at a meeting;
- on a vote taken by show of hands, every shareholder has one vote;
- on a vote taken in a written resolution or on a poll taken at a general meeting, every shareholder has one vote in respect of each share held;
- receive equal share in the distribution of the surplus assets of the company in the event of a liquidation;
- receive equal share in dividends declared by the board;
- raise comments and questions;
- purchase new shares issued by the company (“pre-emption right”);
- priority to purchase shares from other shareholders (“right of first-refusal”);
- sell or be restricted to sell his shares;
- access certain information relating to the affairs of the company;
- sue the relevant directors for breach of fiduciary duty;
- nominate directors and propose shareholder resolutions;
- make recommendations to the board of directors on management matters.
Tips No.3: A shareholder’s liability is limited as the company’s debts are the responsibility of the company itself. The shareholder is only liable up to the price they paid for the shares (or if the shares are partially paid, the shareholder will be required to pay the remaining balance).
Now that you have learned about the roles of a shareholder, click here to learn about the roles and responsibilities of a director too. For every company incorporation, MISHU provides complimentary consulting and advisory services to educate shareholders and directors of their roles, responsibilities and rights.
The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.