corporate management presentation

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HIMACHAL PRADESH NATIONAL LAW UNIVERSITY
SHIMLA
An assignment of Law on Corporate Management on the Topic
Concept of ownership of Shareholders on the assets of the company
Submitted By: Submitted To:
VIKAS ANAND DR. ALOK KUMAR
5020212235 ASSOCIATE PROFESSOR OF LAW
LL.M. 2021-22
(SEMESTER-I)

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ACKNOWLEDGEMENT
Every project, big or small, is booming due to the effort of several wonderful people who have
always given their valuable advice or lent a helping hand. I sincerely appreciate the inspiration,
support, and guidance of those people who have been instrumental in making this project a
success.
I, Vikas Anand, a student at Himachal Pradesh National Law University, Shimla, am incredibly
grateful to Himachal Pradesh National Law University, Shimla, for the confidence bestowed in
me and for entrusting my assignment of Law on Corporate Management.
At this juncture, I feel deeply honored to express my sincere thanks to Honorable REGISTRAR
Prof. S.S. Jaswal and Honorable VICE CHANCELLOR Prof. (Dr.) Nishtha Jaswal for making
resources available at the right time and providing valuable insight leading to the successful
completion of my assignment.
I also extend my gratitude to my Project guide, Dr. Alok Kumar, Assistant Professor of Law,
Himachal Pradesh National Law University, Shimla, who assisted me in compiling the project.
I would also like to thank all the faculty members of H.P. National Law University, Shimla, for
their critical advice and guidance. This project would not have been possible.
Last but not least, I place a deep sense of gratitude to my family members and my friends, who
have been a constant source of inspiration during the preparation of this project work.

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DECLARATION
I, the undersigned, solemnly declare that the project report, “concept of ownership of
Shareholders on the assets of the company,” is based on my work carried out during my study
under the supervision of Dr. Alok Kumar.
I assert the statements made and conclusions drawn are an outcome of my original work. I
further certify that
I. The work contained in the report is a result of work done, best to my capabilities. All
care has been taken to keep this report error-free and I sincerely regret any unintended
discrepancies that might have crept into this project.
II. The work has not been submitted to any other Institution for any other
degree/diploma/certificate in this university or any other University of India or abroad.
III. I have followed the guidelines provided by the university in writing the project report.
IV. I have provided citations and references for the data collected wherever required.
Vikas Anand
5020212235
LL.M. 2021-22

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INDEX
S.No. Particulars Page No.
1. Index 4
2. Abreviations 5
3. List of Cases 6
4. Introduction 7
5. Objective of study 8
6. Research methodology 9
7. Shareholders (roles & responsibilities) 10-11
8. Types of Shareholders 12-13
9. Rights of Shareholders 14-16
10. Concept of Ownership in India 17-18
11. A Comparison between Shareholder
Ownership and Control
19-20
12. Right of a shareholder on the property of
the company
21-24
13. Shareholding in practice 25-27
14. Conclusion 28
15. Bibliography 29

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ABBREVIATIONS
IPO Initial Public Offer
IT Information Technology
SEBI Securities Exchange Board of India
HC High Court
SC Supreme Court
UK United Kingdom

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LIST OF CASES
 Bacha F. Guzdar V. Commissioner of Income Tax
 In Shyamlal Purohit And Anr. vs Jagannath Ray And Anr
 The Commissioner Of ... vs Messrs. Vazir Sultan & Sons
 Lord Anderson in (1924) 8 Tax Cas 704

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INTRODUCTION
What is a Shareholder?1
A shareholder can be a person, company, or organization that holds stock(s) in a given company.
A shareholder must own a minimum of one share in a company’s stock or mutual fund to make
them a partial owner. Shareholders typically receive declared dividends if the company does well
and succeeds. Also called a stockholder, they have the right to vote on some issues concerning
the company and to be elected to a seat on the board of directors.
If the company is getting liquidated and its assets are sold, the shareholder may receive a portion
of that money, provided that the creditors have already been paid. When such a situation arises,
the advantage of being a stockholder lies in the fact that they are not obliged to shoulder
the debts and financial obligations incurred by the company, which means creditors cannot
compel stockholders to pay them.
As owners of the company, shareholders have a unique relationship to the board and the
management. They must rely on the board of directors, whom they elect for managing the affairs
of the company, using their right to vote at shareholders’ meetings. To protect their long-term
economic interests, shareholders have a responsibility to monitor the conduct of the board of
directors and exercise their voting rights by casting thoughtful and informed votes that safe-
guard their financial and other interests.
When the newly formed corporation issues shares to investors, these investors become
shareholders. These issued shares are recorded in the common stock equity account on
the balance sheet. Most balance sheets list out the number of shares outstanding as well as the
total number of shares that are authorized. Shares represent a fractional ownership interest in a
company. Because a shareholder owns one or more shares of stock in a company, a shareholder
is a partial owner of the company. A corporation may offer shares through an initial public
offering (IPO) because it wants to transition from a private to a public company, raise money for
expansion, develop new products and services, or pay off debt.
The concept of having shareholders for the companies is to make the companies accountable for
their actions. As mentioned above, the shareholders are usually represented on the board of
directors and the board of directors acts as the custodian for shareholder interests.
1
https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/

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OBJECTIVES OF STUDY
To analise the concept of
shareholders.
To analise the concept of
ownership.
To analise whether the
concept of ownership by
shareholder regarding the
asset of the company is a
myth or truth?
To provide conclusive result
as to the ownership
regarding assets of the
company.
OBJECTIVES OF STUDY

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RESEARCH METHODLOGY
The research methodology chosen for the study involved in this project report is Secondary
Research. The secondary method of data collection involves using the existing data, known as
secondary data. The collected data is then summarised and arranged according to the desired
results of the study. The present project report consists of method that involves data collection
from:
 Internet
 Government Documents
 Surverys
 Libraries
 Collection Of Data by a Third Party
 Brochure Information of any Organisation
 Business Newsletters
 Market Research Papers

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Concept of ownership of Shareholders on the assets of the company
To discuss the concept of ownership of Shareholders on the assets of the company we need to
discuss more about the shareholders and the ownership first.
Shareholder
Shareholders of a company are the owners of the company owning equity shares issued by
the company. Shareholders of a company are granted various rights and protections under the
Companies Act, 2013.2
Roles & responsibilities of a Shareholder
Being a shareholder isn’t just about receiving profits, as it also includes other responsibilities.
Any public limited or private limited company has shareholders who contribute capital towards
the setting up and running of the company. While in the case of private limited companies, the
shareholders are usually the promoters and a few close friends or family, the public limited
companies have a large body of shareholders drawn from all walks of life. The shareholders of
any company have a responsibility to ensure that the company is well run and well managed.
They do this by monitoring the performance of the company and raising their objections or
giving their approval to the actions of the management of the company. Whereas many
shareholders act through institutional and large investors as their representatives, minority
shareholders have the option of expressing either their disapproval or agreement at the Annual
General Meetings of the companies.3
Although the effective exercise of the voting rights is the key mechanism by which the
shareholders can play a role in the governance of the corporation, It is also important that the
shareholders always keep a watchful eye on the affairs of the company and ensure that the
management is acting and performing its duties in compliance with the provisions of law.
Shareholders should promote more effective corporate governance in the company and ensure
that the corporate governance practices meet high standards of accountability, transparency and
fiduciary responsibility. Shareholders must ensure that the affairs of the company are being
conducted by the management, in the best interests of the shareholders.
In cases where the board is not acceding to the requests of the shareholders, the shareholders can
act directly by asking the management to convene an extraordinary general meeting so that they
can voice their opinions. In recent months, the Indian IT bellwether, Infosys has been facing the
2
https://www.indiafilings.com/learn/shareholder-rights-companies-act-2013/
3
https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/

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heat from the shareholders because of its huge cash reserves where the shareholders have
demanded that the company buyback some of the shares to compensate for the declining
dividends and falling stock prices.
In the West, shareholder activism is usually in the form of putting pressure on the board and the
management to take decisions that are in line with environmental, social and ethical norms and
this is reflected in the way the global multinational, Vedanta, was forced to drop some
controversial projects in India because its shareholders in the UK objected to this on
humanitarian grounds. The point here is that left to themselves, the managements of companies
might act in ways that would enhance their personal benefit at the expense of the company. This
is where shareholders play a crucial role in mediating between the agency problems and issues of
conflict of interest along with asymmetries of information.
For instance, in the recent past, the Public Sector Coal India has been forced to explain several of
the decisions taken by its management and the board of directors because of objections raised by
the shareholders. The examples that have been cited in this article point to the fact that
shareholders can indeed influence the outcomes that the board and the management take on their
behalf. Further, shareholders have a responsibility towards society as well since the companies
that they have invested in cannot be allowed to flout ethical and social norms.

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Types of Shareholders
There are different types of shareholders depending upon the type of ownership and control. If a
company has raised funds by issuing equity shares or preference shares then the owners of these
two types of shares are known as Equity Shareholders and Preference Shareholders respectively.
If the company has raised money through a loan i.e by the issue of debentures then they are
known as Debenture holders.4
All the types of shareholders are having different rights in the working of the company. Common
shareholders are those that own a company’s common stock. They are the more prevalent type of
stockholders, and they have the right to vote on matters concerning the company. As they have
control over how the company is managed, they have the right to file a class-action
lawsuit against the company for any wrongdoing that can potentially harm the organization.
Preferred shareholders, on the other hand, are rarer. Unlike common shareholders, they own a
share of the company’s preferred stock and have no voting rights or any say in the way the
company is managed. Instead, they are entitled to a fixed amount of annual dividend, which they
will receive before the common shareholders are paid their part.
Equity Shareholder: Equity shareholders are those who own the company. They have voting
rights in the company depending upon the number of shares owned by them. They have the right
to question the management of the company’s work.
For example, their votes decide if any director, auditor, the raising of debt, acquisitions, etc is to
b done or not. If majority shareholders oppose the motion then the promoters of the company
will have to abide by the shareholder’s decision.
At the time of winding up of any company, the Equity shareholders are paid at the end for the
value of their holding after Debenture holders and Preference shareholders are paid off. Also,
dividends will be first paid to Preference shareholders and then to the Equity shareholders.
Equity shareholders are entitled to Bonuses and Rights and can also participate in Buyback.
Further, equity shareholders can also be categorized as per their shareholding pattern into
promoters, Institutional investors (foreign and domestic), and the public.
4
https://eqvista.com/business-structure/introduction-ownership-structure/

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Preference Shareholder: Preference shareholders do not have any voting rights in the company
and thus cannot interfere in the working of the management of the company. They have the right
to receive the dividend income out of any’s profit before it is paid to equity shareholders. At the
time of winding up, debenture holders are paid first, and then preference shareholders are paid
off.
Debenture holders: Debenture holders are not the owners but are the creditors of the company.
They do not have any voting rights. Instead of receiving dividends, they receive interest
payments from the company.
This interest payment is paid at a fixed rate decided between the company and the debenture
holders. Debenture holders are paid first at the time of winding up since they are the creditors of
the company.

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Rights of Shareholders
There are different rights accessible to the shareholder. Various types of rights have been
discussed below:
1. Appointment of Directors
Owners of a company play an important part in the position given of ones in control. A normal
resolution is needed to be passed by the shareholders for the position given. Apart from this,
shareholders can also fix different types of directors They are:
(I) An addition of person in control who will place in the ship for goods the office until the next
general body meeting.
(ii) An alternate person in control who will act as an alternate direction for a period of 3 months.
(iii) Nominee person director.
(iv) Director having all necessary things in the case of a by chance position for which someone is
needed in the office of any person in control having all necessary things in a general meeting in a
public company.
Apart, from this shareholder of the company also can physical acts offer any resolution passed
for the position given of a person in control in the general body meeting.
2. Lawful Action Against Directors
Shareholders also can take lawful action against the person in control by the rules put down in
the companies act, 2013. They are:
(I) Any act was done by the person in control in any way which damaging against the affairs of
the company.
(ii)Any act is done which is beyond the law or against the Constitution.
(iii) Fraud
(iv) when the properties of the company are being got moved from one position to another at an
undervalued rate.
(V) when there is an attention troubler of funds of the company. Any act is done in a mala fide
manner.
3. Appointment of Company Auditors
‘Shareholders also have a right to fix the company auditing under the companies’ act 2013, the
first auditing of the company is to have all necessary things by the board of ones in control.
Further, the shareholders at the Annual General body meeting at the statement of directors and
looking over all accounts by the expert committee. The position given is generally done for 5

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years and further, can be up kept by going past, through a resolution in the annual General body
meeting.
4. Voting Rights
Shareholders also have the right to give attention to and give support to the annual general body
meeting. Every company recorded, listed in India should do as requested with statements in the
law of the companies act, 2013. It is ordered for every Indian company to carry an annual
General meeting once in every year. The meeting can be kept anywhere at the head office of the
company or any other place as given by the company. At the meeting, there are different
compulsory schedule which is to be discussed. These include the adoption of money business
statements time or making clear again of directors and auditors.
When a resolution brought by members of a company then according to companies act, 2013?
It can be passed only by the means of giving support to by the owners of companies. Companies
act, 2013 takes consciously coming here types of voting:
• Voting by Show of Hands: Every member present in the meeting has one give support to. So, in
this type of giving support to shareholders give support to just by showing hands.
• Voting Done by Polling: In this type of giving support to the organization chief or the
shareholder’s request for an opinion. However, in case of differential rights in connection with
giving support to a class of equity shares may also have weighed giving support to rights.
• Voting Done by Electronic Means: Means every company that has more than 1000
shareholders must put up an amenity of giving support to through on-line suggests. Every
member should be on the condition that with the means of giving support to online.
• Voting with the Help of the Postal Ballot recording of opinion any resolution in the meeting
can also be passed with the help of the postal ballot.
A shareholder of the company also has a right to fix person acting in place of another on his in
the name when he is unable to give attention to the meeting through the person acting in place of
another is not let to be included in the necessary number (of persons) of the meeting of support
to, it is let by coming here – after a procedure talked-about on companies act, 2013.
5. Right to Call for a General Meeting
Shareholders have the right to name a general meeting. They have a right to direct the person in
control of a company to can all special general meetings. They also can way in the company law

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board for the conduction of general body meeting if it is not done according to the rules-given
requirements.
6. Right to Carefully Look at Records, Lists, and Books:
As shareholders are the main interested organizations in a company they have the right to
carefully look at the accounts register and also the books of the firm and can ask questions about
the same as they have a feeling of so.
7. Right to get Copies of Financial Statements
Stockholders have the right to get copies of the money business it is the act to be done by the
company to send the financial statements of the company to send the money business statements
of the company to all its shareholders either in a quarterly or annual statement.
8. The Winding of the Company
Before the company is wound up the company must give details to all shareholders about the
same and all the credit must be given to all the owners of the company.
Other Shareholders Rights
 Brainstorming and deciding the powers they will bestow upon the company’s directors,
including appointing and removing them from office,
 Deciding on how much the directors receive for their salary. The practice is very tricky
because stockholders must make sure that the amount they will give will compensate for
the expenses and cost of living in the city where the director lives without compromising
the company’s coffers,
 Making decisions on instances the directors have no power over, including making
changes to the company’s constitution,
 Checking and making approvals of the financial statements of the company.

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Concept of Ownership in India
“the state or fact of owning something” -Cambridge Dictonary5
In legal literature and case law, ownership is characterised by incidents of rights, powers,
liberties and immunities; and duty and liability. Ownership is only conferred when they are
present in sufficiency.
The rights include:
(1) The right to possess: to have exclusive physical control of an asset, or to have such control as
the nature of the asset admits;
(2) the right to use: on a very narrow interpretation ‘use’ relates to the owner’s personal use and
enjoyment of the asset owned;
(3) the right to manage: the right to decide how and by whom the asset owned shall be used;
(4) the right to the income of the asset: income in the ordinary sense (fruits, rents, profits) may
be thought of as a surrogate of use, a benefit derived from forgoing personal use and allowing
others to use it for reward;
(5) the incident of residuarity: it is a characteristic of ownership that an owner has a residuary
right in the asset owned.
The ownership structure in Indian companies is characterised by what is called promoters and
nonpromoters. In principle, promoters refer to founders or controlling shareholders while non-
promoters refer to other shareholders, including minority shareholders6. The regulator, SEBI,
has paid close attention to promoters and the implications for the economy in recent years. In the
2017 report on Corporate Governance of the Kotak Committee (aka Kotak Committee Report,
2017) set up by SEBI, it is noted that: “Given the sizable number of promoter-led companies that
are present in the Indian market, the challenges India Inc. faces are inherently unique. There are
instances of promoters carrying out actions that are favourable to them but detrimental to the
interests of minority shareholders. This has affected confidence in India Inc.. The “Custodian”
model works on “Gandhian Principles” relevant for both promoter-managed as well as
professionally managed entities. Under this model, promoters, boards and management wear the
hat of “trustees” and act in the interest of all stakeholders – shareholders, investors, employees,
customers et al, keeping stakeholder interests before self-interest.
Corporate India needs to move in this direction” (Preface by Uday Kotak, Chairman of the Kotak
Committee on Corporate Governance). The importance of controlling shareholders is notable in
many of the Asian economies, particularly in Malaysia, Vietnam, Singapore, and China.
Although there is a significant difference between regulatory frameworks on corporate
governance in Asian economies, India’s experience in addressing issues related to the prevalence
of promoters can provide important lessons also to other economies.
An important feature of the Indian ownership landscape is the presence of “promoters” and
“nonpromoters”. In principle, “promoters” denotes those persons that were instrumental at the
5
https://dictionary.cambridge.org/dictionary/english/ownership
6
Companies Act, 2013 (Sub-Clause (69) of Clause (2)), defines a promoter as a person - (a) who has been named as such in a prospectus or is
identified by the company in the annual return; or (b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act. In many instances, controlling shareholders are considered as promoters. See “Consultative Paper on Review of Corporate
Governance Norm in India” (2013), SEBI

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time of establishing the company and those who are in control of the company, for example
through shareholdings and/or their management position. “Non-promoters” refer to other
shareholders, including minority shareholders. In India, promoters play a significant role in listed
companies. Since 2001, the average proportion of shareholdings by promoters has been stable
around 50%. Such a dominance of promoters could indeed be detrimental to the interest of
minority shareholders, if promoters pursue their own interests at the expense of the minority
shareholders. However, if the conflict of interest is well controlled, promoters could also bring
benefits to the company by serving as a visible and informed owner, overcoming the agency
problem.
The securities market regulator, SEBI, has also introduced policy measures with reference to
promoters and corporate governance. One example is the requirement to maintain a minimum
public shareholding, which would result in an adequate free-floating stock, as the tendency of
promoters to hold a higher percentage of their shareholdings for a longer period could harm
market liquidity. SEBI has also strengthened disclosure requirements to safeguard the interest of
minority shareholders, including disclosure of pledging of promoters’ shares and protection of
minority shareholders’ rights in related party transactions. Another important and related
development is the steady growth in the size and influence of institutional investors in Indian
capital markets. The aggregate market value of shareholdings by institutional investors increased
from 21% of the overall market capitalizations in 2001 to 34% in 2018. An important force
behind this increase has been foreign institutional investors. As a proportion of the overall
institutional investment, shareholdings by foreign institutional investors increased from 11.3% in
September 2001 to 46.0% in September 2014. In the most recent four years the proportion of
shareholdings by domestic institutional investors shows an upward trend.

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A Comparison between Shareholder Ownership and Control
We discussed the roles and responsibilities of the shareholders above. Now we will look at the
distinction between shareholder ownership and control and illuminate how this comparison plays
out in the corporate world. To start with, many public limited companies have a large body of
shareholders who have invested in the company and contributed to the setting up of the company
and running it.7
However, shareholder ownership does not imply control since the company law makes it clear
that only a majority percentage of the shareholders can exercise control. The point here is that to
have effective say over the running of the company, a majority vote of the shareholders is
necessary following the democratic norms of participation that govern companies.
Hence, for all purposes, it is clear that whenever and wherever shareholders gather the necessary
majority of votes, they would also have control over the company.
Theoretically, shareholders own the company and hence the company ought to be run according
to the dictates of the shareholders. However, in practice, there would be significant differences of
opinion among shareholders and this leads to a situation where arriving at a consensus is not
possible. Hence, the provision that there needs to be a majority percentage of the shareholders to
have effective control or say in the decision making of the companies has been established. This
is also the case with any decision that is taken by the board of directors and the shareholders as
control is in the hands of those who can drum up the required numbers of votes. This is the
crucial distinction between shareholder ownership and control that is practiced in the real world.
However, this is not to say that shareholder control always needs a majority of votes. For
instance, there can be cases where many shareholders cede their access to other shareholders
who can then act on their behalf. Further, institutional shareholders represent voting blocs who
can have a greater say in running of the companies than the minority shareholders. It is these
differences that are at the heart of the debate over shareholder ownership and control which
determine the nature of control that is exercised in the corporate world. The point here is that
shareholders are the owners of the company and hence, they have a right to control the company.
However, as in any democracy, they need to have the numbers on their side to have a say in the
running of the company.
7
https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6701

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Finally, in recent years, there has been an upsurge of shareholder activism mainly due to the fact
that many corporate scandals have emerged leading to unease among the shareholders. So, it is
indeed the case that shareholder control is necessary to prevent the management and the board
from taking decisions unilaterally that are not in the best interests of the shareholders. In
conclusion, it is the case that shareholders be vigilant and are the custodians of their own
interests rather than being passive and let the board or management decide on their behalf.

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RIGHT OF A SHAREHOLDER ON THE PROPERTY OF THE COMPANY
The company incorporated under the Companies Act is formed by the promoters who are also
the shareholders of the company. The number of shareholders may differ according to the nature
of the company. The private company has prescribed number of members (200 members as on
now) and the public limited company has no maximum limit. The company is a separate legal
entity and separate from its shareholders. The company is having perpetual succession. Members
may come and may go but the company will survive until it is wound up. The equity
shareholders are the owners of the company. The affairs of the company are run by the Board of
Directors. But certain powers are given only to the shareholders that can be executed in the
general meetings.8
The shares of the shareholders may be transferred and may be traded if such
shares are listed in the stock exchange. The liability of the shareholder is limited to the extent of
the value of shares held by him. Beyond that the shareholder is not having liability. If the
company is wound up the equity shareholders is having the last in the queue. The employees,
secured credits, taxes etc., are given priority for settlement. If there is no excess after full
settlement the equity shareholders may not get anything. The author came across on interesting
Supreme Court judgment on the right of the shareholder on the property of the company which
has been decided in the year 1954. The said judgment is discussed below.
In ‘Bacha F. Guzdar V. Commissioner of Income Tax9’ – 1954 (10)- Supreme Court the
appellant as a shareholder in two tea companies received dividends totaling to ₹ 2750/-. The two
companies carried on business of growing, manufacturing and sale of tea. 40% of the income of
the tea companies was taxed as income from the manufacture and sale of tea and 60% of the
income was exempt from Income Tax as agricultural income. The Income tax Department
claimed tax on the total dividend received. The appellant contended that the income of the tea
companies to the extent of 60% agricultural income which is exempted from income tax. As
such the tax proportionate to the exempted income is also to be exempted. The Department
contended that the dividend is not an agricultural income and therefore the whole of income is
liable to be taxed. The Supreme Court held that agricultural income as defined in the Act is
obviously intended to refer to the revenue received by direct association with the land which is
used for agricultural purposes and not by directly extending it to cases where that revenue or part
thereof changes hands either by way of distribution of dividends or otherwise. The Supreme
8
https://www.scribd.com/document/264462457/Company-Law-and-the-Myth-of-Shareholder-Ownership
9
https://indiankanoon.org/doc/1873699/

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Court explained the nature of dividend payment. The dividend is derived from the investment
made in the shares of the company. The foundation of paying dividend rests on the contractual
relations made between the company and the shareholders. The dividend is payable only if the
company acquires profit. The dividend is not derived by a shareholder by his direct relationship
with the land. Initial source which has produced the revenue is land used for agricultural
purposes. The Supreme Court held that to give the words ‘revenue derived from land’ the
unrestricted meaning, apart from its direct association or relation with the land, would be quite
unwarranted. The Supreme Court further held that a shareholder acquires a right to participate in
the profits of the company may be readily conceded but it is not possible to accept the contention
that the shareholder acquires any interest in the assets of the company. The use of the word
‘assets’ cannot be exploited to warrant the inference that a shareholder, on investing money in
the purchase of shares becomes entitled to the assets of the company and has any share in the
property of the company. A shareholder has got no interest in the property of the company
though he has undoubtedly a right to participate in the profits if and when the company decides
to divide them. The Supreme Court further analyzed the role of the shareholders. The
shareholders of the company have the sole determining voice in administering the affairs of the
company. The shareholders are having the right by the provisions of the Company Law and
Articles of association to participate in the profit of the company by means of dividend. The
interest of the shareholder either individually or collectively does not amount to more than a
right to participate in the profits of the company. The Supreme Court held that the company is a
juristic person and is distinct from the shareholders. It is the company which owns the property
and not the shareholders. There is nothing in the Indian law to warrant the assumption that a
shareholder who buys shares buys any interest in the property of the company which is a juristic
person entirely distinct from the shareholders. The appellant contended that the position of
shareholders in a company is analogous to that of partners in the partnership. The Supreme Court
rejected this contention as inaccurate. Partnership is merely an association of person for carrying
on the business of partnership and in law the firm name is a compendious method of describing
the partners. Such is not the case of a company which stands as a separate juristic entity distinct
from the shareholders. The Supreme Court relied on the law regarding the attributes of shares as
stated in Halsbury’s Laws of England. According to this a share is a right to a specified amount
of the share capital of a company carrying with it certain rights and liabilities while the company
is a going concern and in its winding up. The shares or other interest of any member in a
company are personal estate transferable in the manner provided by its articles and are not of the
nature of real estate. The Supreme Court further held that if the contention of the appellant is

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accepted will be tantamount to saying that the creditor recovering interest on money debt due
from the agriculturists who pays out of the produce of the land is equally entitled to the
exemption. The above discussion of the Supreme Court clearly lays that a shareholder has no
vested interest in the properties of the company.
Further the Concept of ownership of Shareholders on the assets of the company
is discussed in following case laws:
In Shyamlal Purohit And Anr. vs Jagannath Ray And Anr. on 3 December, 1968,10 Calcutta
High Court in para no.10 discussed about the rights of the shareholders on the assets of the
company. The relevant portion is as under:
“It was held that he had no insurable interest. The rights of a shareholder in
the assets of a company were also dealt with in the Supreme Court
decision Charanjit Lal Chowdhury v. Union of India, . This case is familiarly
known as the 'Sholapur Mills case.' It was held that the "property" of the
shareholder, besides and apart from his right to elect directors, pass
resolutions, giving directions to the directors and to present a winding up
petition, consists of his right to participate in the dividends declared on the
profits made in the working of the company and, in case of winding up to
participate in the surplus that may be left after meeting the wind-Ing up
expenses and paying the creditors.”
This right was further explained in .the Supreme Court decision of . The Supreme Court said as
follows:
"It was argued by Mr. Kolah on the strength of an observation made by Lord
Anderson in (1924) 8 Tax Cas 704 at p. 710, that an investor buys in the first
place a share of the assets of the industrial concern proportionate to the
number of shares he has purchased and also buys the right to participate in
any profits which the company may make in the future. That a shareholder
acquires a right to participate in the profits of the company may be readily
conceded but it is not possible to accept the contention that the shareholder
acquires any interest in the assets of the company. The use of the words
'assets' in the passage quoted above cannot be exploited to warrant the
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inference that a shareholder, on investing money in the purchase of shares,
becomes entitled to the assets of the company and has any share in the
property of the company.
A shareholder has got no interest in the property of the company though he has undoubtedly a
right to participate in the profits if and when the company decides to divide them. The Interest of
a shareholder 'vis-a-vis 'the company, was explained in the 'Sholapur Mills case', . That
judgment negatives the position taken up on behalf of the appellant that a shareholder has got a
right in the property of the company. It is true that the shareholders of the company have the sole
determining voice in administering the affairs of the company and are entitled, as provided by
the Articles of Association, to declare that dividends should be distributed out of the profits of
the company to the shareholders, but the interest of the shareholder either individually or
collectively does not amount to more than a right to participate in the profits of the company.
The company is a Juristic person and Is distinct from the shareholders. It is the company which
owns the property and not the shareholders.
Ghulam Hasan, J. pointed out that although Lord Anderson in (1924) 8 Tax Cas 70411, had
stated that a shareholder buys in the first place a "share in the assets of the company",
proportionate to the number of the shares purchased, this did not mean that he had acquired an
interest in any property of the company.
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Shareholding in practice
The ownership of shares cannot be equated with ownership of companies as discussed above.
Shareholders possess a piece of paper entitling them to receive future income, but do not have
the right to use any of the assets held by the corporation for their personal use. Companies are
legal persons and in that capacity, they can own assets and use them in accordance with the
directions given by directors. If any shareholder were to attempt to possess the asset and use it
for personal enjoyment, s/he will probably be accused of theft.12
As the assets are legally owned and managed by the company, it can grant charges on property
and also license it to third parties to generate income without the permission of shareholders.
Shareholders cannot use the assets of a company to satisfy their own debts. In common with
other consumers, shareholders can use a company’s assets and services by paying a price, but
they generally do not have any special privileges arising from their investment in shares of the
company.
Shareholders do not have a right to manage the company or the assets vested in the company in
which they own shares, though they can elect directors to do so. Shareholders can vote on
resolutions to constrain management, but that does not result in the right to manage assets. Most
votes at annual general meetings of UK corporations are advisory rather than binding on
directors.
Shareholders do not have the right to demand income from the assets owned by the company.
They can receive dividends, but only after directors agree to declare them. Shareholders can vote
to accept or reduce the payment of dividend, but they cannot demand a higher amount. In
principle, shareholders can hold share certificates for an indefinite period, and can continue to
enjoy the benefits derived from it as long as the company remains in existence.
However, the state can nationalise industries and restrict the ability of individuals to hold shares.
Shareholders cannot recover the capital represented by share certificates from the company. Of
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26. P a g e | 26
course, they can sell their shares to another party, but under competition laws the state may
disapprove mergers and takeovers and veto the ability of shareholder desire to buy or sell shares.
Shareholders can transfer or bequeath shares to successors, subject to the taxation laws of the
country. The same also applies to using shares for gifts or mortgages. The share certificates may
have some value as long as the company is solvent.
In the course of their business, companies may sell their assets, but shareholders do not have the
right to receive the proceeds unless directors so elect, subject to statutory rules about solvency
and capital maintenance. Shareholders do have a residual interest in the event of bankruptcy,
assuming that the assets have been disposed to satisfy the prior claims of secured and unsecured
creditors. In practice, shareholders may receive little or nothing.
According to legal arrangements shareholders bear the residuary risks, but unlike employees they
can manage some of their risks by holding diversified portfolios. In economic theory there are
considerable similarities between the position of a shareholder and a debt holder.
Both are outside the corporation and both have provided money to a company in expectation of a
return. The return due to debt holders may be written into a contract and needs to be paid before
payment of any dividends, but neither is guaranteed income or the return of the original loan or
investment.
There is considerable evidence to suggest that in pursuit of higher profits and shareholder
returns, companies have engaged in harmful actions, including the sale of harmful products
(tobacco, alcohol), manufacture diseases, deadly weapons, genocide, cartels, tax avoidance,
money laundering, bribery and corruption.
Harmful actions may increase returns to shareholders, but also blights the lives of many people.
Shareholders may receive a higher return, but they cannot be individually held responsible for
the consequences of harmful actions by their companies.
Shareholders can attend annual general meetings and extraordinary meetings to vote on
resolutions and ask questions about harmful practices, but they cannot bind directors to follow a
particular business strategy. If a company is found guilty of harmful/illegal practices,

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shareholders cannot be asked to compensate the victims as their liability is limited to the extent
of their share capital. The ultimate sanction is that shareholders can voluntarily liquidate the
company engaged in harmful practices, but that is rare.
The state can liquidate a corporation engaged in harmful practices even against the express
wishes of its shareholders, but shareholders are not required to make good the damage done to
other stakeholders and society. Seemingly, the corporate veil permits shareholders to benefit
from practices, which as natural persons they would not be able to.

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Conclusion
To sum up, the claims of the shareholder supremacy in accounting, auditing, finance and
corporate governance literature rely on the assumption that shareholders own corporations.
However, shareholders cannot own companies in the same way that an individual can own a
mobile phone.
Shareholders are not the owners of corporations as they fail most of the tests associated with
ownership. Shareholders cannot possess or use any of the assets held by a corporation. They
cannot dictate business strategy, control the sale of assets, demand dividends or be held liable for
a corporation’s actions. They may claim residuary interest by liquidating the corporations but
there is no guarantee that they will receive anything. The property of a company is entirely
separate from the ownership rights of individual shareholders.
Shareholders have entitlement to receive income and this is accompanied by limited liability and
social irresponsibility because they do not directly bear the cost of corporate malpractices.
Bringing corporations under public control remains a major challenge.
A shareholder has got no interest in the property of the company though he has undoubtedly a
right to participate in the profits if and when the company decides to divide them. The Interest of
a shareholder 'vis-a-vis 'the company, was explained in the 'Sholapur Mills case', . That
judgment negatives the position taken up on behalf of the appellant that a shareholder has got a
right in the property of the company. It is true that the shareholders of the company have the sole
determining voice in administering the affairs of the company and are entitled, as provided by
the Articles of Association, to declare that dividends should be distributed out of the profits of
the company to the shareholders, but the interest of the shareholder either individually or
collectively does not amount to more than a right to participate in the profits of the company.
The company is a Juristic person and Is distinct from the shareholders. It is the company which
owns the property and not the shareholders.

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Bibliography
 https://www.mca.gov.in/content/mca/global/en/home.html.
 https://www.manupatrafast.com/?t=desktop.
 https://www.scconline.com/?login=true.
 https://indiankanoon.org/
 https://www.indiafilings.com/
 https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6701
 https://indiankanoon.org/doc/1833296/
 https://www.pqmagazine.com/the-myth-of-shareholder-ownership/
 https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/
 https://eqvista.com/business-structure/introduction-ownership-structure/