By - Hanny

Roles And Responsibilities Of Shareholders In A Company

A company cannot thrive without having financial supporters. They fund a firm by acquiring shares in the corporation, becoming shareholders also known as partial owners of the company.

Shareholders have particular rights, functions, and responsibilities that are outlined in the Companies Act of 2006 and the company’s Articles of Association. Shareholders can also be corporate directors. While directors are in charge of the day-to-day administration of the company and making informed decisions, shareholders have distinct tasks and responsibilities in regard to their ownership of the firm.

Shareholders can make decisions like removing a director from office, altering the company’s name, or approving a service agreement for a director that provides him with labor protection for more than two years. In general, shareholders have limited influence on the directors and how the firm is operated. They play their role in hosting and arranging annual general meetings and guarantee that the board of directors do not exceed their authority and should get permission from shareholders whenever mandatory. 

Roles Of Shareholders

They have a vital role in a company’s finance, management, administration, and governance. Let’s have a bird’s eye view on certain roles of shareholders. 

1. A Company’s Financing

Fundraising is an important part in establishing a business and shareholders are responsible for a company’s financing. Shareholders invest and in return they get a portion of ownership rights from the company’s founders. Private corporations and innovators can also obtain financing through preferred stock, which are share issuance to a limited number of individuals and organisations.

Along with shareholders, venture capitalists can also contribute additional huge sums of money in return for a greater part of the ownership. Shareholders, unlike bond investors, do not get monthly interest and a return on their initial investment from the corporation.

2. Operations of a Company

Shareholders have both active and passive roles in the functioning of a corporation. They can elect directors, who select and oversee top officials such as the CEO and CFO. They have an indirect or passive impact on the stock market. Investors avoid firms that fail to reach earnings projections and instead invest in equities that routinely outperform them.

As a result, the company is always under conditions to reach and exceed sales and profit predictions. Shareholders can ask for cash flows in the form of dividends and put pressure to the companies that generate substantial free cash flows. 

3. Control of a Company

Generally, shareholders decide control of the company. A corporation that is widely owned and does not have a solitary major shareholder is open to hostile takeover maneuvers. Shareholders might object to such actions if they are pleased with the present management or feel the listing price is inadequate. Institutional shareholders may openly request that firm management examine potential alternatives such as divestiture or merger with another company.

4. Emergency Meetings

Another very important role of shareholders is that when the board of directors refuses to take action on the shareholders’ decisions, the shareholders might take direct action by requesting the administration to call an emergency general meeting so that they can express their views. They can pressurise the board of directors and management to make choices that are consistent with ESG standards. Because it is the board of directors’ responsibility to act according to the shareholders’ orders.

5. Costs 

Public corporations bear the expenses relating to the shareholders of a company such as communications expenses, compliance fees, and the costs of arranging annual general meetings, and other cost events.