Shareholder Rights

If you buy shares in a public company, you become a part owner of that company. For example, as a shareholder of one share of Microsoft, you enjoy the same basic privileges and rights as Bill Gates, who owns millions of shares. Most companies use a one-vote-one-share system. So, even though your one share of Microsoft does not count much against Mr. Gates’ millions of votes, the company is obliged to take each vote seriously.

As a shareholder, knowing your rights is an essential part of being an informed investor. A well-informed investor who fully understands his or her rights is much less susceptible to additional risks.

Shareholders receive quarterly reports and an annual report informing about the financial health of the company. The quarterly reports inform shareholders how much money the company has made or lost during the reporting period, and also reviews the business activities that have taken place. The annual report is a combination of all quarterly reports provides detailed business and financial information about the company.

As a shareholder, you will be invited each year to attend the Shareholders’ Annual General Meeting (AGM), where you can interact with executive management and vote on matters that come before the board. If you cannot go to the AGM, the company will send you an absentee ballot, allowing you to vote by proxy.

The responsibility of the company’s board and management is in an ethical manner to realize the inherent value in the company’s business and maximize shareholders’ value.

One downside of share ownership is that if the company goes bankrupt, you as a part owner are not first in line for getting a portion of the company’s assets you are at the very bottom of the corporate food chain when a company liquidates. During insolvency proceedings, it is the creditors who have first priority.

Shareholders’ Six Main Rights

1.Voting Power on Major Issues

This includes electing directors and proposals for fundamental changes affecting the company such as mergers or liquidation. Voting takes place at the company’s annual meeting. If you can’t attend, you can do so by proxy and mail in your vote. (see The Purpose and Importance of Proxy Voting)

2.Ownership of a Portion of the Company

Shareholders own a piece of the company and have a claim on a portion of the assets owned by the company. As these assets generate profits, and as the profits are reinvested in additional assets, shareholders see a return in the form of increased share value as stock price rises.

3.Right to Transfer Ownership

Shareholders are allowed to trade their stock on an exchange. The right to transfer ownership might seem mundane, but the liquidity provided by stock exchanges is extremely important. Liquidity is one of the key factors that differentiates stocks from an investment like real estate that can take months to convert into cash. Because stocks are so liquid, you can move your money into other places almost instantaneously.

4.Entitlement to Dividends

Along with a claim on assets, Shareholders also receive a claim on any profits a company. This is paid out in the form of a dividend. Management of a company essentially has two options with profits: they can be reinvested back into the firm, increasing the company’s overall value. Or pay it out as a dividend. The value of a dividend is decided by the board of directors. Good dividends attract further investors so have an influence on increasing the value of a company.

5.The right to Inspect Corporate Books and Records

This opportunity is provided through a company’s public filings, including its annual report. In the old days this meant you could go to the companies head office and demand to see the Corporate Books and Records. However now, public companies are required to make their financials public, so this information is easily available.

6.The Right to Sue for Wrongful Acts

This usually takes the form of a shareholder class-action lawsuit. A good example of this type of suit occurred in the wake of the accounting scandal that rocked WorldCom in 2002, after it was discovered that the company had grossly overstated earnings, giving shareholders and investors an erroneous view of its financial health. The telecom giant faced a firestorm of shareholder class-action suits as a result.

Shareholder rights in this respect vary from country to country. However the right to sue is a right crucial for the protection of shareholders against poor management.

SUISHARE will strive to ensure that these rights are protected.