Rights of Share Holders’ of a Company
EscrowTech India Private Limited
Creative Enclave, III Floor,
#148-150, Luz Church Road,
Mylapore, Chennai, India – 600 004.
Phone: +91 44 45535571/72
Tele Fax: +91 44 42104341
Levels of Ownership Rights
Every company has a hierarchical structure of rights that
accompany the three main classes of securities that
companies issue: bonds, preferred stock and common stock
Common 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.
2. Ownership in a Portion of the Company
When business thrives, common shareholders own a piece of
something that has value ie., they 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 prices rise.
3. The Right to Transfer Ownership
Right to transfer ownership means shareholders are allowed to
trade their stock on an exchange.. Liquidity is one of the key factors
that differentiates stocks from an investment like real estate. If you
own property, it can take months to convert your investment into
cash. Because stocks are so liquid, you can move your money into
other places almost instantaneously.
4. An Entitlement to Dividends
Along with a claim on assets, you also receive a claim on any profits a
company pays 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 (hopefully increasing the company's overall value) or paid out in
the form of a dividend. Whenever dividends are declared, common
shareholders are entitled to receive their share.
5. Opportunity to Inspect Corporate Books and
This opportunity is provided through a company's public
filings, including its annual report. Nowadays, this isn't
such a big deal as public companies are required to
make their financials public. It can be more important
for private companies.
6.The Right to Sue for Wrongful Acts
Suing a company 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.
In addition to the six basic rights of common
shareholders, it is vital that you thoroughly research
the corporate governance policies of a company.
These policies are often crucial in determining how a
company treats and informs its shareholders.
Shareholder Rights Plan
A company's shareholder rights plan, is usually accessible in the
investor's relations section of its corporate website or by contacting
the company directly. In most cases, these plans are designed to
give the company's board of directors the power to protect
shareholder interests in the event of an attempt by an outsider to
acquire the company. To prevent a hostile takeover, the company
will have a shareholder rights plan that can be exercised when
another person or firm acquires a certain percentage of outstanding
As a shareholder, knowing your rights is an essential part of being an
informed investor - ignorance is not a defense. Although the Securities and
Exchange Commission and other regulatory bodies attempt to enforce a
certain degree of shareholder rights, a well-informed investor who fully
understands his or her rights is much less susceptible to additional risks.