Many people who consider investing in a corporation or other commercial entity wonder what are the rights of shareholders in a company in the United States.
The rights of shareholders in a U.S. company differ from state to state. However, there are a handful of basic rights that shareholders enjoy irrespective of the state where the company is organized.
When an investor, whether an individual or a commercial entity, purchases shares in a company they become a partial owner of that company (ie. a shareholder).
Therefore, a shareholder is a partial owner of a company who purchased ownership interest by contributing capital towards forming the company or by buying the company’s share; it is a person or business entity who pays cash or performs services in exchange for shares in the company. In exchange for their investment, shareholders are entitled to receive income in proportion to their capital contribution.
The income shareholders receive is usually in the form of dividends, but profits can also be distributed in other ways such as interim dividends, bonus shares and rights issues. As a result of company ownership, shareholders enjoy not only some perks and benefits but also a small number of important rights.
The benefits of company ownership leave one asking what are the rights of shareholder in a company. The basic rights of shareholders include:
- Voting Rights. Voting is the most important right a shareholder has. A shareholder has the right to vote at various meetings including annual shareholders meeting, extraordinary meeting and general meeting. A shareholder votes according to the company’s voting procedure and can do so in person or by proxy. When a shareholder votes by proxy it means that the shareholder designates another person to represent them and vote when they are not present. A shareholder can generally demand a poll for voting if they feel like a vote would be detrimental to the company’s interests.
- Right to access the company books and records. A company’s management is required to maintain proper books of accounts and records. A shareholder has the right to see and inspect the company’s audited financial records and notes from meetings in order an accurate picture of the business. However, to gain access to the company books and records a shareholder must send a written demand to the company prior to inspection. The demand must be sent a specific number of days before inspection and this number varies across different states.
- Right to participate in the profits. A shareholder has the right to receive dividends anytime time company’s board of directors declare dividends.
In addition to the voting and dividend rights above, shareholders in a company have other important rights they get in return for their investment:
- Right to file both criminal and civil cases against the management of the company if they are involved in illegal activities
- Right to apply for the company to wind up if it cannot satisfy its debts
- Right to elect the board of directors
- The preemptive right to buy shares
- Right to receive portion of the assets left after liquidation
- Right to speak and stay informed on all policy decisions that affect the company
MALESCU LAW – Business Corporate Lawyers