Auckland company law provides a robust framework to protect shareholder interests. While shareholders enjoy several rights that allow them to influence the company’s decisions and safeguard their investments, these rights do come with certain restrictions. Understanding the rights and their restrictions is crucial for both current and potential shareholders, as well as company directors.
- Right to Vote
Shareholders have the right to attend general meetings and vote on significant company matters whether proposed / discussed at those meetings or by way of written resolution. These decisions might include the election of directors, approval of dividends, and changes to the company’s constitution.
Each share typically grants one vote, though this can vary depending on the class of shares held. Shareholders can also appoint proxies to vote on their behalf if they cannot attend shareholder meetings in person.
One of the most significant restrictions on shareholder rights is the principle of majority rule. While shareholders can vote on important matters, the majority vote prevails, which means minority shareholders may not always get their way. This restriction is designed to ensure that the company can operate efficiently without being paralysed by dissent from a small group of shareholders.
The Companies Act 2006 specifies certain matters and decisions that must be passed by way of special resolution, requiring the holders of not less than 75% of the shares to approve them. All other matters and decisions may be passed by way of ordinary resolution, requiring a simple majority of the holders of more than 50% of the shares, unless the company’s articles of association require a special resolution.
- Right to Dividends
If the company declares dividends, shareholders are entitled to receive their share of the profits. However, the declaration of dividends is at the discretion of the company’s directors, although final dividends are typically approved by shareholders.
The amount received depends on the number and class of shares held. Preferred shareholders, for example, may have a fixed dividend rate. The company’s articles of association may also permit ordinary resolutions to be passed to declare dividends to the exclusion of certain classes of shares.
- Right of Pre-Emption
When a company issues new shares, existing shareholders have the right of first refusal, known as pre-emption rights. These rights can however be waived by a special resolution or under certain circumstances specified in the company’s articles of association. Waiving pre-emption rights is often done to bring in new investors, but it can dilute existing shareholders’ ownership and voting power.
In some companies, particularly private companies, shareholders may have a right of pre-emption on the transfer of shares also, or there may be other restrictions on the transfer of shares. Whilst in some respects these rights and restrictions may protect shareholders by limiting the ability of other shareholders to transfer shares to those who shareholders may not want to be in business with, these restrictions can also limit the ability of shareholders to sell their shares when they want to or need to.
- Right to Information
Companies are legally required to send a copy of the company’s annual accounts to every shareholder, either electronically or in physical form. The accounts include critical information about the company’s financial performance, strategies, and future outlook.
In addition, shareholders have the right to inspect certain company records, including the company’s register of members and minutes of general meetings. This right allows shareholders to remain informed about the company’s financial health and its governance.
While shareholders can request access to, shareholders do not have the automatic right to access, confidential or commercially sensitive information that could harm the company if disclosed.
Shareholders may need to provide reasonable notice to access information, or obtain a court order for certain records, particularly if the company believes the request is not in its best interest.
- Right to call a General Meeting
Shareholders holding at least 5% of the paid-up capital of the company can requisition a general meeting. This power enables minority shareholders to convene a meeting if they believe the directors are not acting in the company’s best interest. By requiring the shareholders making the requisition to hold at least 5% of the company’s paid-up share capital, it helps the company to ensure it is not burdened with frivolous or frequent meetings.
To requisition a general meeting, the shareholders must provide a valid reason for calling the meeting and may be required to bear the associated costs. Once requisitioned, the company is obligated to arrange the meeting within a specified period.
- Right to approve certain Transactions
Certain transactions, such as loans to, or substantial property transactions involving non-cash assets with, directors or persons connected with directors, require shareholder approval. This right ensures that shareholders have a say in decisions that could significantly impact the value of their investment.
The Companies Act 2006 outlines specific thresholds for what constitutes a significant transaction, typically linked to the company’s size and the transaction’s relative value.
- Right to petition for Winding Up
In extreme cases, shareholders can petition the court to wind up the company if they believe it is just and equitable to do so, such as in cases of fraudulent or oppressive conduct by the directors.
This is typically a last resort and is usually considered when there is no other remedy available, as winding up results in the company ceasing operations.
- Right to bring Derivative Actions
Shareholders can bring a derivative action on behalf of the company if they believe the directors are acting improperly. This right is however heavily restricted and requires court permission to proceed.
The court will only allow a derivative action to proceed if it is in the best interests of the company, not just the individual shareholder.
It is essentially for shareholders to understand their rights and the limitation on their rights in order to make informed decisions and protect their investments. Whether you’re a minority shareholder concerned about corporate governance, or a majority shareholder looking to exercise your voting rights, being aware of your legal standing is crucial in navigating the complexities of corporate ownership.
If require any advice regarding your rights as a shareholder, please contact our Corporate team by email or phone on 0113 207 0000.
