Company Shareholders Rights


A company is a form of business organization. It is a collection of individuals and physical assets with a common focus and an aim of gaining profits.[1] This collection exists in Law and therefore a company is considered a “Legal Person”. Generally, a company may be a “corporation, partnership, association, joint-stock company, trust, fund, or organized group of persons, whether incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing”.[2]

Majority shareholders are the people who control more than half of the company’s outstanding shares, or sometimes they are a small group of people who control half of the company’s outstanding share. The majority shareholder, in many cases, mostly the head of the company but may also be an individual or a group of connected shareholders. This is more common with the smaller companies and emerging organization. The value of shares can be downhearted by the existence of the majority shareholders including a group of connected share holders.

Minority shareholders are the shareholders who have minority stake in the company which is controlled by the majority shareholders. Minority shareholders have the disadvantage of any real say in the running of the company and they might find that the company is running in a way that benefits the majority shareholders rather than them.

“Although legal protections exist against this danger, they are not always effective. A majority shareholder cannot (at least in any country with an effective legal system) blatantly cheat the minority, but there are more subtle ways in which the majority can favors itself, for example, by preferring to deal with group companies (such as other subsidiaries of the parent). The “minority” may have more shares, lack of control due to how the company is structured: for example, they may include non-voting shareholders.”[3]

Non-voting shares are the shares which have no voting rights even though its entitled to the share of the profits. “The most typical rights for non-voting share are identical to those of ordinary shares apart from the lack of a vote at company AGMs and EMGs.

The purpose of non-voting shares is to allow the holders of the ordinary shares to maintain control. The holders of the ordinary shares may be founders of a company, the existing shareholders of a company (often a family company) that wishes to list, a company that wants the benefits of an employee shares scheme without the existing shareholders losing control.

Non-voting shares are usually less valuable than voting shares despite being entitled to exactly the same stream of dividends. A simple dividend discount model would suggest that they are worth the same, but there are a number of reasons why the prices should be different:

  • The voting shares are more valuable in a takeover bid as most bidders aim at control, which owning non-voting share does not help achieve.
  • The appointment of directors can bring an additional income stream. This is most relevant for small companies, especially family companies and those still controlled by their founders.
  • Control can bring the ability to make the company deal with connected parties. Visibly abusing this brings the risks of legal challenges from the minorities (which, in this context, includes other classes of shareholder).

This should make it clear why investors have become increasingly resistant to buying non-voting shares, which have becomes less widely used.”[4]So a proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company.

Shareholders Right:

The rights and entity that comes with the ownership of the shares in a company are rarely fully utilized by the shareholders. This happens because the shareholders are unaware about the rights that they possess as being a shareholder of the company. Similarly, most Company Directors would be alarmed at the strict obligations that they have as regards the Company’s shareholders, which include maintaining a Register of Directors/Secretaries, a Register of Shareholders, and a Register of Director’s Interest in Shares, a Register of Charges and Minute Books. These must be kept open to inspection by shareholders.[5] More shares may represent the more power within the company. That means the greater the share holding of an individual, the chances are greater for that person to possess greater power in the company. This is not only because of the larger amount of share holding by that person but also because of the Companies Act afford greater rights and power to an individual as the size of that person’s shareholding increases. “For example, a shareholder owning 5% of a company has the right to have an item placed on the Agenda for discussion at a General Meeting and, once the shareholder’s ownership reaches 10% of the company, he/she has greater rights including the right to force a formal audit of the annual accounts.”

“In the great majority of Limited Companies, a shareholding in excess of 50% of the issued share capital will be enough to control the company, dictate the makeup of the Board of Directors and to be able to do most of the acts necessary to run the company in its everyday business.

It is possible for those owning less than 50% of a company to protect themselves from being at the mercy of those holding over 50% of the shares in the company and this is one reason why shareholders should give serious consideration to agreeing a shareholders’ agreement or adopting pr Ensuring Minority Shareholders rights:

The companies now-a-days are trying to attract skilled employees by offering stock options. While these types of offerings can gain attention and create incentives for key employees, they also create a group of minority shareholders. It is sometimes difficult to ensure the fair treatment of this minority shareholder, especially in small, closely held corporations, where the shares are characteristically determined by the few owners who are often relatives or business associates. When majority shareholders use the attempt to dominate the minority shareholders, litigation can result.

To protect against such oppressive behavior, most states’ laws in USA give minority shareholders some indisputable rights. Though the exactness of the rules varies from state to state, several common law rights have been emerged to protect all the shareholders, including those in the minority, from being dominated by the majority. On the other hand, shareholder agreements or corporate bylaws often contain protections for minority shareholders.

Because a company is a common property of all of its shareholders including both minority and majority shareholders, the majority shareholders, who most of the time control corporate management, holds a responsibility to act generously and exercise, sound managerial judgment to the minority shareholders. The basic assumption is that the majority must not oppress the minority.

“Oppression includes, but is not limited to, the misapplication of assets or the mismanagement of funds. Such behavior might range from negligent management practices that cause serious shareholder losses to illegalities such as granting “sweetheart” loans to shareholders or allowing them to use corporate funds to pay personal obligations. Further, conduct that might be harmless under one set of circumstances may be considered oppressive under another. For instance, payment of large salaries to officers might be considered reasonable during a period of high earnings, but oppressive when the officers are also majority shareholders and minority shareholders are frozen out of their share of the earnings by the large salaries.

Additionally, during transactions that significantly affect the form of a corporation, such as mergers or acquisitions, majority shareholders owe the minority a duty of intrinsic fairness. Intrinsic fairness may be shown by ensuring that the majority treats the minority equitably in the transaction and the minority receives a fair price for its shares in case of a sale or merger. Any such transaction, moreover, must take place for valid business reasons independent of the majority’s personal interests, and majority shareholders must disclose fully to the minority all facts and circumstances surrounding the transaction.

Courts take accusations of oppression seriously and use their equitable jurisdiction to even the odds. The remedies available to courts include the appointment of receivers, invalidation of or injunction against the proposed action, payment of damages to shareholders or the corporate fiscal, and in the most egregious cases, dissolution of the corporation”[6].

To protect the rights of all shareholders, including minorities, state corporations laws frequently include the following provisions[7]:The right to bring derivative suits against corporate managers. These suits are appropriate when managers are breaching their fiduciary duties.

 The right of appraisal and payment.The right of appraisal and payment in the event of a fundamental corporate change, such as a merger, which is opposed by some of the shareholders. Many states allow dissenting shareholders to demand appraisal and payment for their shares from the majority, if a shareholder vote is required for fundamental changes.

Pre-emptive rights, which allow shareholders to maintain their relative equity in the company when new shares are issued. Pre-emptive rights act as a shareholder’s right of first refusal, allowing shareholders to purchase any new shares issued in their pro rata portion before those shares are offered to others. However, pre-emptive rights are usually subject to limitations.

“The squeeze-outright grants a majority shareholder the right to force the minority to sell their financial instruments to the majority shareholder. Its counterpart, the sell-out right, is the right of a minority shareholder to compel the majority shareholder to purchase the shares of the minority. Most European Member States had already incorporated a corporate squeeze-out right into their legal systems. The Takeover Directive introduced both rights after a takeover bid into the European Member States. This paper assesses the European and national legislation of Belgium, France, the Netherlands, the UK and Germany regarding both the ‘takeover’ squeeze-out and sell-out and the ‘corporate’ squeeze-out and sell-out rules. More precisely, the types of target companies, the thresholds which need to be met before these rights can be asserted, the financial instruments that can be squeezed or sold out, and the valuation methods used to calculate compensation for minority shareholders are dealt with. From a cross country analysis of these aspects, we conclude that, although the Takeover Directive aims at minimum harmonization, its implementation into the Member States’ legislations created several differences and layers of legislation. This has led to the undesirable result that the procedures for squeezing out or selling out vary between Member States, confronting minority shareholders with different levels of protection and majority shareholders with minorities that can hardly ever, or in some cases never, be frozen out”[8].

Shareholders Rights in context of Bangladesh:

The following sets out a brief summary of the salient provisions of Bangladeshi company law and regulation relating to rights of shareholders of the Company. It is not, and is not intended to be, an exhaustive or definitive lists of such rights but is intended merely to provide brief details and information relating to such rights.

“The rights of the shareholders (including the holders of AIM Securities) of the Company are included in the Bangladesh Companies Act 1994, the Bangladesh Securities and Exchange Ordinance 1969 (together with the Bangladesh Securities and Exchange Commission Act 1993 and the rules made there under) and the rules of the Dhaka Stock Exchange (DSE), the Chittagong Stock Exchange (CSE) and the Company’s Articles of Association.

Financial Disclosures

Under the Bangladesh Securities and Exchange Rules, 1987, Bangladeshi listed companies are obliged to prepare annual audited accounts, audited by a chartered accountant, and to send such accounts to the Bangladesh SEC, the relevant stock exchanges and all shareholders of such company at least fourteen days prior to holding of its AGM. These financial statements, in addition to the requirements of the Securities and Exchange Rules 1987 and the Bangladesh Companies Act 1994, are required to comply with the International Accounting Standards as adopted by the Institute of the Chartered Accountants of Bangladesh. In auditing these financial statements, the auditors are also required to conduct their audit in conformity with the International Standards of Auditing as adopted by the Institute of the Chartered Accountants of Bangladesh.

Further, the Bangladesh Securities and Exchange Rules, 1987 require Bangladeshi listed companies to prepare half-yearly accounts, which do not have to be audited, but do have to be sent to the Bangladesh SEC, the relevant stock exchanges and all shareholders of such company. The half-yearly accounts must contain a balance sheet, profit and loss account and cash-flow statements prepared in the same way as the annual audited accounts are prepared, and must be sent within one month of the half-year end.

Also, a listed company is subject to continuing disclosure requirements pursuant to the Listing Regulations of the DSE and the CSE. Accordingly, a listed company is required to inform the Bangladesh SEC, the DSE and the CSE immediately of any ”price sensitive information” (as defined above).

In addition, a listed company must notify the Bangladesh SEC, the DSE and the CSE of the following:

Any change in its board of directors; and any change in the holding of each director, officer and/or other shareholder of the company who is or has been the legal owner of ten per cent. Or above of any class of the company’s listed securities at any point of time within seven days of such change; and every transfer of share by the company’s sponsors (including every director, promoter and officer) within seven days of such transfer. Minority shareholders who feel that the Company’s affairs are being conducted in a manner prejudicial to their interests may apply to court for relief in a procedure analogous to that contained in the UK Companies Act 1985.

Enquiries into the Company’s Affairs

The holders are not less than 5 per cent. The issued share capital of a Bangladeshi listed company can petition to the Bangladesh SEC to make enquirers into the affairs of the company in which they hold shares, or its business and transactions, under the Bangladesh Securities and Exchange Ordinance 1969. If the Bangladesh SEC decides to investigate, it has the power to require the production of information from the company and its directors, officers and employees.


Under the Bangladesh Securities and Exchange Ordinance 1969 and the rules of the DSE and the CSE, when a final or interim dividend is approved by the directors of a Bangladeshi listed company, the DSE, the CSE and the Bangladesh SEC require that decision to be notified to them within 30 (thirty) minutes. The decision (as notified) will be subject to shareholders’ approval in the Annual General Meeting if the dividend is a final dividend. The dividends must be disbursed to the shareholders with 60 days of such declaration.

Issue of Shares

The Bangladesh Companies Act 1994 also gives shareholders pre-emption rights, which may be disciplined by a resolution of the Directors. However, the Articles of Association of the Company provide that, subject to a Shareholders’ resolution to the contrary, any new shares to be issued must first be issued to the existing Shareholders pro rata to their holdings.

Issue of Shares

The Bangladesh Companies Act, 1994 also gives shareholders pre-emption rights, which may be disciplined by a resolution of the Directors. However, the Articles of Association of the Company provide that, subject to a Shareholders’ resolution to the contrary, any new shares to be issued must first be issued to the existing Shareholders pro rata to their holdings.

Reduction of Share Capital

A Bangladeshi company may by special resolution reduce its share capital in any manner subject to Court confirmation in a procedure analogous to that contained in the UK Companies Act 1985.

Share Buy Back

A Bangladeshi company may buy back its own shares only by way of a court-approved reduction of capital.

Removal of Directors

The shareholders of a company may, by extraordinary resolution in a general meeting, remove any director and appoint a director to fill that vacancy.

Loans to Directors

The Company is not permitted to make any loans to directors or any person connected with a director, unless the loan is for less than 50 per cent. of the value of the shares in the Company held by the director; is approved by the Company in a general meeting; is approved by the directors; and is specifically referred to in the annual report and accounts of the Company.

Sale of Undertaking or Assets

There is no equivalent to the UK Companies Act 1985 provisions requiring the shareholders to sanction the acquisition or sale of a non-cash asset between a director and the Company. Under the Bangladesh Companies Act 1994, the directors may not sell the undertaking of the Company without the consent of the shareholders in a general meeting”[9].


Every company consist of both majority and minority shareholders. Though majority shareholders are basically the governing bodies and are responsible for the running of the company, minorities are also plays a vital role inside company. The majority shareholders sell shares when they are in need of money and there may have some people who joined the company as minority shareholders. So they are also the part of the company. Nevertheless, they play a vital role by financing the company. “While the shareholders of public listed companies have the option of selling their shares in the open market, the same course of action is unfortunately not available to shareholders of unlisted companies, since there is no ready market for private company shares. In a world that recognizes ‘simple majority rules’, minority shareholders of companies are by default vulnerable to oppression, disregard and unfair treatment by majority shareholders who are in control of the company”[10]. But if this continues to happen, the companies governing bodies may not find people to buy their share when they are in grave need. So to protect the rights of the minority shareholders from the biasness of the majority a balance is necessary between their rights. And it is also necessary for the smooth functioning of the company. Otherwise a company will find it difficult to continue its business in the living world.



2.       Black’s Law and lee Dictionary. Second Pocket Edition. Bryan A. Garner, editor. West. 2001




6.        Protecting the right of the minority shareholder- by Hallowell, Andrew, Publication: Set-Aside Alert, Date: Friday, February 22 2002

7.       Corporations Act 2001

8.       Balancing the Interests of Minority and Majority Shareholders: A Comparative Analysis of Squeeze-out and Sell-out Rights- by Christoph van der Els t and Lientje van den Steen.


10.   The Law of Majority Shareholder Power: Use and Abuse by David Chivers QC, Ben Shaw.

11.   Company Meetings: Law, Practice and Procedure by Leslie Kosmin

12.   DD Prentice (1988), The Theory of the Firm: Minority Shareholder Oppression: Sections 459-461 of the Companies Act 1985, Oxford Journal of Legal Studies.

13.   Brownlee, Hunter J. (1994-1995), Shareholders’ Agreement: A Contractual Alternative to Oppression as a Ground for Dissolution, The, 24, Stetson L. Rev., pp. 267

14.   The Minority Shareholder: What A Shareholder Can Do by Mary Hanson

15. A History by Norman Devies

16.   Limited Liability Companies For Dummies by Jennifer Reuting

17.   Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights by Thom Hartmann

18.   Corporations: Examples & Explanations, Sixth Edition by Alan R. Palmiter


[2] Black’s Law and lee Dictionary. Second Pocket Edition. Bryan A. Garner, editor. West. 2001




[6] Protecting the right of the minority shareholder- by Hallowell, Andrew, Publication: Set-Aside Alert, Date: Friday, February 22 2002

[7] Corporations Act 2001

[8] Balancing the Interests of Minority and Majority Shareholders: A Comparative Analysis of Squeeze-out and Sell-out Rights- by Christoph van der Els t and Lientje van den Steen.