The powers and rights of a shareholder in a company can vary depending on the type of shares they hold; the constitution of the company and any shareholder agreements that they have entered into. This article focuses on the role and duties of a shareholder in an Irish private limited company under a standard constitution in accordance with the Irish Companies Act 2014.
The role of a shareholder
Shareholders are the owners of a company and provide financial backing in return for potential dividends or other compensation over the lifetime of the company. A person or corporation can become a shareholder of a company in three ways:
- By subscribing to the constitution of the company during incorporation
- By investing in return for new shares in the company
- By obtaining shares from an existing shareholder by purchase, by gift or by will
Subscribers are usually the party who initiate the incorporation of a company and automatically become the first shareholders after incorporation. The payment of shares may be made in money or in money's worth including goodwill and expertise. While it is possible for shareholders to transfer their shares, it is also possible for private companies to place restrictions on this process in the constitution of the company.
Shareholders duties
The fundamental duty of a shareholder is to make decisions. A shareholder doesn’t manage the day-to-day business of the company as this is handled by the board of directors. However, decisions in relation to the company’s goals and overall performance often require shareholder approval, which include (but are not limited to) the following:
- Changes to the constitution of the company
- Declaring a final dividend
- Reducing the capital of the company
- Re-appointing a Statutory Auditor
- Winding up the company by way of voluntary liquidation
Shareholder decisions can be made by written resolution or at general meetings, where shareholders discuss the company’s performance and vote on relevant resolutions. There are two types of general meetings,annual (AGM), which are held once a year andextraordinary (EGM), which take place when required. Unless the company’s constitution provides otherwise, it is possible for a shareholder to appoint a proxy to attend and vote in their place when they are unable to attend a general meeting.
Though it is not possible for shareholders to amend decisions made by directors or interfere with the running of the company, it is possible for them to convene a general meeting and raise a motion to remove a director, or the full board, or they can amend the constitution to restrict the director’s powers.
Shareholder decisions
There are two types of shareholder resolutions, ordinary and special, and both have distinct rules and requirements. An ordinary resolution requires a simple majority of the members present to vote in favour of the resolution and this is acceptable for most shareholder decisions. For Irish private limited companies, special resolutions require the approval of 75% or more of those eligible to vote.
Votes at general meetingscan be cast either by way of a show of hands or by poll. A show of hands results in every shareholder or proxy present having one vote only, while a poll allows each shareholder to have one vote for each share they hold.
Shareholder liability
A shareholder’s liability is limited as the company’s debts are the responsibility of the company itself. The shareholder is liable only for the price they paid for the shares however it should be noted that if the shares are partially paid, the shareholder will be required to pay the remaining balance, either when the directors or an administrator (if the company is in financial difficulty) call up the unpaid amount.
Summary
The above is a brief introduction to the role of a company shareholder and how decisions are made, however it should again be noted that not all companies are identical, and some may have amended their own rules by preparing bespoke regulations in the constitution or a shareholder agreement. Therefore, it is vital that the company’s constitution and relevant agreements are reviewed before shareholder approval is sought.
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FAQs
The fundamental duty of a shareholder is to make decisions. A shareholder doesn't manage the day-to-day business of the company as this is handled by the board of directors.
What are stockholders roles and responsibilities? ›
Role and responsibilities of a stockholder
While the rights and responsibilities of stockholders can vary depending on the jurisdiction and the type of company, they are typically responsible for voting on the board of directors, making major corporate decisions, and receiving dividends.
What is the primary responsibility of shareholders? ›
The primary responsibility of the shareholders of a corporation is electing a board of directors. The board acts as the first line of corporate governance and is charged with the oversight of the corporation's executives, making key decisions on behalf of the shareholders regarding the company's direction and policies.
What are the rights and duties of shareholders of a company? ›
All you need to know about shareholder's rights and responsibilities
- Appointment of directors.
- Appointment of company auditors.
- Right to vote.
- Right to appoint a proxy.
- Right to get notice of the meetings.
- Right to call for general meetings.
- Right to attend the AGM.
- Right to inspect registers and books.
A shareholder is any person, company, or institution that owns shares in a company's stock. A company shareholder can hold as little as one share. Shareholders will make capital gains (or losses) when selling shares, and may receive dividends if the company pays them.
What are the legal duties of shareholders? ›
In a corporation, the board of directors has a fiduciary duty to the shareholders, requiring the board to make decisions in the best interest of shareholders.
What are the obligations of shareholders? ›
Shareholders are not responsible for the company's legal obligations or debt as companies are separate legal entities. As such, a shareholders: liability is limited to the unpaid amount of their shares; and. obligations are expressed in the company constitution or shareholders agreement.
Do shareholders have responsibility? ›
Shareholders only have 'limited liability' for the debts of the company. That means they are only responsible for company debts up to the value of any shares (assuming no personal guarantees have been signed).
What are the ethical responsibilities of shareholders? ›
Using contract theory, which holds that all contracting parties have ethical responsibilities, five principles are identified as the ethical responsibilities of stakeholders to their companies: empathy, fairness, solidarity, reliability, and openness.
What are shareholders not responsible for? ›
The shareholders' liability in a corporation is limited to the amount they paid for their shares; shareholders are usually not liable for the corporation's debts.
A shareholder by definition owns a part of the business. They do this through purchasing shares in the company, and while they own the business, they do not run it – this duty falls to the director. A shareholder may choose to also be a director, but you do not have to be one to be the other.
What is a company responsibility to its shareholders? ›
In exchange for their capital, shareholders are promised certain interests and rights. It is the responsibility of certain parties to maintain and uphold these interests, including a company's board of directors, management team, and financial regulators.
What are the 7 rights of shareholders? ›
Among the rights of the company's shareholders are: (1) to receive notices of and to attend shareholders' meetings; (2) to participate and vote on the basis of the one-share, one-vote policy; (3) nominate, elect, remove, and replace Board members (including via cumulative voting); (4) call for a special board meeting ...
What is the 10 shareholder rule? ›
(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a ...
How do shareholders get paid? ›
Profits made by companies limited by shares are often distributed to their members (shareholders) in the form of cash dividend payments. Dividends are issued to all members whose shares provide dividend rights, which most do. Company profits are distributed in proportion to the percentage of shares held by each member.
What are the duties of a majority shareholder? ›
Majority shareholders have legal obligations, including the obligation to act in the best interests of the company and its shareholders, to refrain from engaging in self-dealing, and to disclose important information to all shareholders.
What is the business responsibility toward shareholders? ›
The business should therefore fulfill its 'economic objective/s'. To protect the interests of the shareholders, it should safeguard capital, earn reasonable dividend and maintain a successful competitive position.
