A proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company.
“A shareholder or stockholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself (Fama 1980)[1].”
Stockholders always get special privileges depending on the class of stock. These rights may include:
1. The right to sell their shares provided there is a buyer.
2. The right to vote on the directors nominated by the board.
3. The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions.
4. The right to dividends if they are declared.
5. The right to purchase new shares issued by the company.
6. The right to what assets remains after a liquidation.
Stockholders or shareholders are assessed via several to be a subset of stakeholders, which may include anyone, whoever has a guide or indirect hobby in the commerce entity. For instance, labor, contributors, customers, the population, etc. are typically assessed stakeholders because they contribute quality and/or are impacted via the corporation.
Shareholders in the initial market whoever purchase IPOs supply funds to corporations; however, the vast majorities of shareholders are in the minor market and supply no funds immediately to the corporation
The Rights of Shareholders and Key Ownership Function
Rights of shareholders are embraced in the Companies Act 1994. The Act donations shareholders certain privileges for instance joining meetings, appointing and getting clear of chief managers, receiving fiscal knowledge, and commending the per annum balance sheet. Shareholders are in addition bestowed methods to enforce their rights. In augmentation, as a security for shareholders, the chief managers and organization of a financial gathering are subject to such retributions as charges and imprisonment for not filing periodic returns.
The Code of Corporate Governance embraces orders for the security of shareholders’ welfare, embracing provisions for transparency and liability for the security of small fraction shareholders. The Code proposes that financial gatherings empower their shareholders past the lawful and regulatory requirements. Regulators are demanded to sustain the privileges of shareholders. The Code in addition proposes that financial gatherings assure that shareholders are announced of their privileges, mostly voting privileges, in order that they may entirely contend their power.
Rights of shareholders:
The Companies Act gives various rights to the shareholders of a company. The important rights are mentioned below.
- A shareholder can appear at and poll in the general meetings of the company.
- The holder of a Share Warrant does not commonly have the right to poll, but the portion of a financial gathering may give him that right.
- A shareholder has certain privileges in regard of accounts. A shareholder ought be bestowed a exact reproduce of the balance sheet and the “statutory report” in the case of the “statutory meeting”.
- A shareholder is authorized to check the minutes of the proceedings of any general assembly without any charge.
- A shareholder has the right to check the record and indicator of components and debenture holders and the per annum revisits, without any charge.
- If the label of any component is, without enough source, omitted from the record of components, he can ask for to the court for rectification of the register.
- A shareholder can convey his share, subject to any boundaries that may be encompassed in the articles.
- A shareholder can ask for the wrapping up of the financial gathering under certain circumstances.
- If excess assets are obtainable after wrapping up, they are to be disseminated amid shareholders.
- Preference shareholders are authorized to get dividends.
- Shareholders have the right to ask for to the Central Government for support and redress under certain circumstances.
- A shareholder, combined with certain other components, can call an Extraordinary General Meeting on Requisition.
- A shareholder can avert the bond of share and can allegation severe impairment, if there is any misstatement or intentional secrecy of a material item in the prospectus.
- The Articles of Association of a financial gathering may give assorted other privileges and privileges to the shareholders.
Disclosure and Transparency
In Bangladesh, financial gathering discovery to shareholders and the public is the only method that shareholders and investors have to estimate a company’s recital and supervise the pursuits of the board. The 2003 BEI[2] report shows the value of stringent enforcement of controls pertaining to disclosure. However, discovery is often wrong and incomplete. The justice demands that journals transcription the financial gathering money be kept at the recorded bureau and be obtainable for check by government officials. Sanctions for noncompliance embrace charges and imprisonment. The report adjudicators financial gathering discovery supported on the prerequisites of the Bangladesh Accounting Standards (BASs) as “inadequate” (p. 26) and “not consistent” (p. 54), with reasonably no consequences. It adds that frail auditing and control continue the situation. Other pertinent knowledge regularly moves unreported.
Core Company Law and Principal/Agent Problems
Core financial gathering justice positions three collections of principal/agent troubles which are inherent in the
Structure of large companies: those deriving from between organization and the shareholders as a class, between bulk shareholders and small fraction shareholders; and between the controllers of the financial gathering (whether managers or bulk shareholders) and non-shareholder stakeholders. Within a actual financial gathering the first two collections of obstacle are mutually exclusive (at slightest at any one purpose in time) and which predominates is reliant upon the structure of shareholdings. Where shareholdings are isolated the principal/agent obstacle which arises is that between shareholders as a class and the organization of the company. No subject what the schematic governance privileges of the shareholders may be, their collective achievement troubles may make it in rehearse impractical or very arduous for the shareholders to physical exercise effectual manipulate over the organization of the company. Inconsequence, organization may give main concern to non-shareholder welfare, embracing the welfare of the managers themselves. In augmentation to giving for constricted liability, financial gathering justice looks for to manipulate the enticements to opportunistic conduct on the part of financial gathering controllers which constricted liability generates.[3]
Setting the incentives of members of the board
The useful annoyances surrounding the physical exercise of deletion privileges clarifies in large part the involvement in jurisdictions for instance the UK in reorganize of the statutes in view to the composition and functioning of the board. Non-standard share subjects and share re-purchases and, of course, duty statutes about the yield made on such schemes. The risk included in the adoption of enticement plans for aligning management’s welfare with those of the shareholders is that the method of setting the plan will be ensnared by the manager directors. The effecting enticement plans will hence be more an manifestation of the executives’ clash of involvement than a way of beating that conflict. Attempts to address this obstacle have distilled on three principle elements: full discovery of the particulars of separate someone directors’ remuneration packages; lessening the job of managers in setting their remuneration packages and demanding calling for recital criteria for the rewarding of the incentives. However, the environs of manager remuneration carries on to be problematic. Governments are averse to set substantive compensate stages or even to manipulate rates of advance in remuneration in the confidential subdivision of market economies. On the other hand, there is good established items of market no achievement in the setting of manager remuneration. Neither of the approaches talked about atop (shareholder watching and watching by non-executive directors) looks like to have been wholly winning in talking to such market failures. Consequently, even in nations in which ‘corporate governance’ reorganize has been taken a long way, the setting of manager remuneration stays an environs of controversy[4]
Legal liability
Despite the item that inflicting liability upon chief managers who play-act incompetently or disloyally would look like to be an apparent lawful approach to deal with the principal/agent obstacle between organization and shareholders as a class, this advance has been left until last, because it shows a quite tiny job in constraining the pursuits of slabs of directors. All procedures in belief have provisions which could be invoked to inflict liability on chief managers who play-act incompetently. Litigation is an highly charge and indecisive way of watching slabs and adjudicators are not likely highly talented in discharging the watching role. Nevertheless, competency benchmarks perform put on a needed setting job, by setting least benchmarks, and the recent leaning to have been to advance their strictness. Turning to responsibilities of dedication, an apparent setting lead to have in rank to look after the welfare of the shareholders as a class is one which demands the board to physical exercise its needed discretion in the welfare of the shareholders. In more lawful procedures, there is some suspect about the scope of this setting lead, because the responsibility is said to be to farther the welfare of the ‘company’ and it is not very distinctly individual whose welfare are the company’s interests.
Appointment and removal rights
Centralized organization under a board quite unresponsive to the shareholders brings ahead only the capability of security for small fraction shareholders. It does not warranty that the board will look after the small fraction from either the majority’s or management’s self-interested decisions. A more effectual procedure of small fraction security may be to sheltered representation of small fraction welfare on the board. This may empower them to effect the board’s determinations in their favor and at slightest, will put them in a location where they are better announced about the board’s activities. Minority shareholders may be competent to cut-price for board representation, but mandatory statutes on the subject are rare. The most apparent procedure to endorse small fraction representation on the board is cumulative voting. The justification for this may be that where there is no tough clash between bulk and small fraction shareholders, cumulative voting is unnecessary; where such clash does survive, cumulative voting basically transfers that clash to the board and lessens the effectiveness of centralized management. A lesser configuration of security for small fraction shareholders which does not have the matching capability to convey clash to the board room is to fix the voting privileges of large shareholders through voting caps. In actual, a voting covering is in all likelihood to have the issue of establishing the deletion of organization by a winning take-over bidder much more difficult.
Board rules and controller/stakeholder problems
The third use to which board statutes may be put is for the security of non-shareholder stakeholder interests. As now showed, the only stakeholder welfare who are in item notably looked after in this way are those of the creditors and the employees. However, while creditor security is an valued function of all financial gathering justice, the use of board statutes to look after creditors is not well deduced in any procedure, a least while the financial gathering is a going concern. This looks like to be because, at a general stage and short of insolvency, the creditors’ welfare are well looked after by the responsibility upon the board to move frontwards the welfare of the ‘company’, while precise sorts of financial gathering opportunism as in resistance to creditors can be controlled by statutes other than board rules.
Liability rules
In nations which perform not have person employed representatives at board stage, it is often recommended that first step to the security of stakeholder welfare is to unwind the lawful responsibilities was indebted by chief managers to endorse the welfare of the shareholders as a class.
It is dubious, even so, if such provisions bring ahead any extensive point of security to stakeholder welfare, as resisted to the welfare of incumbent organization, except to the bounds that stakeholder welfare coincide with those of management.[5] It is dubious that this appraisal wants to be modified in the case of statutes which require directors to have view to a assortment of stakeholder interests. Unless the assortment of people empowered to enforce the responsibility is broadened to embrace components of the stakeholder gatherings and if not the courtyards take on a bold and interventionist stance when re-evaluating management’s option amid the differing stakeholder welfare, it is dubious that a responsibility to endorse a assortment of stakeholder welfare will generate a expanded optimistic consequence in rehearse on stakeholders than a discretion to endorse their interests. In both instances, entrenchment of incumbent organization is in all likelihood to be the greatest issue of such rules.
On the other hand, modification of the liability statutes so as to return the shareholders with a solitary other stakeholder gathering as the object of the directors’ discretion may have an consequence, to the bounds that liability statutes are effectual at all. All procedures now acknowledge that, as the financial gathering nears insolvency, the residual claimants on the financial gathering become the creditors as an alternative the shareholders.
The rise of shareholder value
The second principle gesture of reorganize in board statutes in the post-war interval has replied to the get higher of the shareholder involvement in companies. The justifications for the resurrection of the shareholder involvement are tolerably clear. The capital markets now play a expanded job in financing enterprise through the spectrum. However, it is not basically a ‘taxpayers’ revolt’ or the want to get concurrently the convergence criteria for the solitary currency which have generated bigger recourse to capital markets. Businesses which have perpetually been in the confidential subdivision want better entry to capital markets for triumph, to some extent as a effect of globalization and the advanced struggle it engenders and to some extent as a effect of modifications in technology. Many nations have observed a demutualization of confidential subdivision financial gatherings, principally in fiscal services providers.
At any general meeting
On a present of hands, every component who is present in someone will have one vote; and on a survey, every component who is present in someone or by proxy has one poll for every share of which he is the holder. The quorum for a Shareholders’ assembly is five people authorized to poll and present in person. A proxy exemplifying a Shareholder which is a financial gathering may not poll if not his selection as proxy has been commended by a perseverance of the chief managers of the appointing financial gathering, which perseverance stays in full force and issue at the time of the meeting.
Financial Disclosures
Under the Bangladesh Securities and Exchange Rules, 1987, Bangladeshi registered financial gatherings are obliged to organize per annum audited statements, audited by a leased vessel accountant, and to convey such statements to the Bangladesh SEC, the pertinent store interchanges and all shareholders of such financial gathering at least fourteen days earlier to keeping of its AGM. Further, the Bangladesh Securities and Exchange Rules, 1987 demand Bangladeshi registered financial gatherings to organize half-yearly statements, which perform not have to be audited, but perform have to be conveyed to the Bangladesh SEC, the pertinent store interchanges and all shareholders of such company. The half-yearly statements ought encompass a balance sheet, yield and forfeit account and cash-flow assertions organized in the matching way as the per annum audited statements are organized, and ought be sent in one month of the half-year end. Also, a registered financial gathering is subject to carrying on discovery prerequisites pursuant to the Listing Regulations of the DSE and the CSE. Accordingly, a registered financial gathering is demanded to report the Bangladesh SEC, the DSE and the CSE straight away of any ”price aware information”.
In augmentation, a registered financial gathering ought notify the Bangladesh SEC, the DSE and the CSE of the following:
Ø Any change in its board of directors; and any change in the keeping of each chief director, staff and/or other shareholder of the financial gathering who is or has been the lawful holder of 10 per cent. or atop of any class of the company’s registered securities at any purpose of time in seven days of such change; and
Ø Every convey of share by the company’s sponsors (including every chief director, promoter and officer) in seven days of such transfer.
Protection of Minority Interests
Minority shareholders who sense that the Company’s actions are being carried out in a fashion prejudicial to their welfare may ask for to court for support in a process analogous to that encompassed in the UK Companies Act 1985. Enquiries into the Company’s Affairs The holders of not less than 5 per 100 of the distributed share capital of a Bangladeshi registered financial gathering can request to the Bangladesh SEC to make enquirers into the actions of the financial gathering in which they retain allocations, or its enterprise and transactions, under the Bangladesh Securities and Exchange Ordinance 1969. If the Bangladesh SEC makes a determination to examine, it has the power to demand the goods produced of knowledge from the financial gathering and its chief managers, staff and employees.
Conclusion
It is clear from the atop that board statutes can make a addition to the principal/agent obstacle as between bulk and small fraction shareholders, but that addition is a humble one. There are two justifications for this. First, this task is better distributed to other elements of quintessence financial gathering law. For instance minorities may be looked after by the statutes connecting to voting at shareholder meetings (to be talked about at another assembly of the conference) or by the lead encountered in most jurisdictions that distributions by financial gatherings to shareholders ought be pro rata to the equity holdings of those shareholders. Second, as we have found, correcting board statutes as to address the majority/minority clash may well make the board statutes less effectual at agreement with the first instrumentality obstacle (management and shareholders as a class). There may hence be a trade-off between statutes talking to the two collections of troubles and legislators may have picked to give bigger prominence to first instrumentality conflict. Alternatively, there may be reflected to be a relative superiority in employing board statutes to address the first instrumentality clash while employing other elements of financial gathering justice to address majority/minority conflicts. Majority/minority clash is not likely distilled on the board and hence is open to control by non-board rules.
[1] Eugene Francis “Gene” Fama (born February 14, 1939) is an American economist,
[2] Bangladesh Enterprise Institute website. Accessed on June 10, 2009. (BEI website)
[3] Because company law’s interest in creditor relations is driven by the principle of limited liability, company law does not usually provide a complete code of rules for company/creditor relations, but only for those aspect of the relationship upon which limited liability impinges. Other aspects of the relationship are governed by rules pertaining to creditor/debtors in general.
[4] Corporate Governance 2000 (London, 2000), laying the blame in part on the freedom the Combined Code gives companies not to implement its recommendations fully, provided reasons are given for non-implementation (see section VI below); Department of Trade and Industry, Directors’ Remuneration: A Consultative Document (London, July 1999).
[5] ‘Federalism and Corporate Law: The Race to Protect Managers from Takeover’ (1999) 99 Columbia Law Review 1168.
Correspondence
For: The Lawyers & Jurists
M.L.Hotel Tower Ltd,208,Shahid Syed Nazrul Islam Sarani,
Bijoy Nagar, Dhaka-1000.
Email-admin@lawyersnjurists.com/nomaer@hotmail.com
www.lawyersnjurists.com
Country code+ Ph No.
Ph:0088-02-9571389; 0088-02-9513408,
0088-02-9564329, 0088-02-9564398
Direct cell with country code:
Local Code :
a)0088-01733689444
b)0088-01674647033
C)0088-01552632768