Description
The presentation describing rights of shareholders under company's act 1956.
RIGHTS OF SHAREHOLDERS UNDER COMPANIES ACT,1956
1
SUPREME COURT SAYS…
“ By a share in a company is meant not any sum of money but an interest measured by a sum of money and made up of diverse rights conferred on its holders by the articles of the company which constitutes a contract between him and the company” CIT Vs United Vaccuum Oil [1966]
2
The Supreme Court in a very important case held that “a shareholder has an undoubted interest in a company, an interest which is represented by his shareholding. Share is a moveable property with in the attributes of such property”. LIC of India Ltd. Vs Escorts Ltd(1986)
3
IMPORTANT RIGHTS OF THE SHAREHOLDER
To elect director and thus to participate in the management through them. ? To vote on the resolutions at meetings of the company. ? To enjoy the profits of the company in the shape of dividends. ? To apply to the court in the case of oppression. ? To apply to the court for winding up of the company. ? A share in the surplus on winding up. ? To apply to the court for relief in case of mismanagement.
?
4
1)RIGHT TO DIVIDEND AND SHARE IN
SURPLUS PROFITS
?
The Companies Act,1956 does not give any specific power to the companies registered there under to declare and pay any dividend The power to pay dividend is inherent in a company and is not derived from the Companies Act or the Memorandum or Articles of Association although the Articles generally regulate the manner in which dividends can be declared
?
5
RIGHT TO DIVIDEND(CONTD..)
No necessity to declare dividend every year ? Dividends paid out of divisible profits ? According to section 205 dividends can be declared out of the following three sources: • Current profits • Past reserves created out of profits or credit balance in the profit and loss account brought forward. • Out of moneys provided by the government if any
?
6
2) VOTING RIGHTS OF EQUITY SHAREHOLDERS (SECTION 87(1))
?
Provision is applicable only in case of a public company or a private company which is subsidiary of a public company. Right of equity shareholders to vote cannot be prohibited on the ground that he has not held his shares for any specified period before the meeting or on any other ground.
?
7
EXCEPTION TO VOTING RIGHTS (SECTION 181)
Non-payment of calls by a member ? Other sum due against the member ? Where the company has exercised the right of lien on his shares
?
In case of a private company there may be placed certain conditions on the voting rights of the equity shareholders
8
3) ALL EQUITY SHAREHOLDERS ARE
ENTITLED TO RECEIVE FULLY PAID BONUS SHARES
9
4) ALL EQUITY SHAREHOLDERS ARE ENTITLED TO
RECEIVE OFFER TO SUBSCRIBE TO FURTHER ISSUE OF CAPITAL ON RIGHTS BASIS.
(SECTION 81(1))
?
When „rights shares? are allotted “such further shares shall be offered to the persons who at the date of the offer, are holders of the equity shareholders of a company, in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date”
10
5) RIGHT TO RENOUNCE RIGHT SHARES(SECTION 81(1C))
?
An equity shareholder can renounce his shares in favour of a third person unless the articles of the company otherwise provide
11
6) ANY MEMBER CAN ASK FOR COPY OF
MEMORANDUM AND ARTICLES OF ASSOCIATION (SECTION 39)
?
The section requires that every agreement and every resolution referred to in section 192 should be embodied in the Memorandum or Articles and on being required by a member and within seven days of such requirement a copy of them should be furnished to him. Section 391 also requires that a copy of the order of Court under that section approving of a compromise or arrangement with creditors and/or members or sanctioning the reconstruction or amalgamation.
12
?
7) RIGHTS OF SHAREHOLDERS IN RELATION TO THE
AFFAIRS OF THE COMPANIES
?
The Companies Act has conferred wide powers to the equity shareholders to overlook the affairs and the management of the company, to see that the company works properly.
13
8) EVERY MEMBER HAS RIGHT TO INSPECT
DOCUMENTS AND REGISTERS TO BE KEPT BY THE COMPANY UNDER THE SAID ACT AND ASK EXTRACTS THEREFROM.( SECTION 167)
?
The underlying policy is to exercise the power only where the management is found to be unwilling to convene an AGM of the company, with a view to keeping the shareholders in the dark about the affairs of the company or where the management is unable to convene the meeting due to party friction or other like reason
14
9 ) CORPORATE BODIES BEING MEMBERS OF THE
COMPANY CAN APPOINT REPRESENTATIVES TO ATTEND GENERAL MEETINGS.(SECTION
?
187)
It is necessary for this power to be exercised that the company?s name is in the in the register of members of the company whose meetings are to be attended.
Only one representative can be appointed by corporate bodies irrespective of the amount of shareholding.
15
?
10) EVERY MEMBER HAS RIGHT TO INSPECT
MINUTES OF GENERAL MEETINGS AND ASK FOR EXTRACT THERE FROM. (SECTION 196)
?
A separate book should be kept for minutes of general meetings.
A member is entitled to a copy of the minutes of proceedings of general meetings within seven days after requesting for it. The right to inspect or be furnished with a copy of the minutes accrues only after their entry in the books kept for the purpose within thirty days of the conclusion of the meeting as provided in section 193.
?
?
16
11) EVERY MEMBER IS ENTITLED TO HAVE COPIES OF ACCOUNTS AND AUDITORS’
REPORT OR STATEMENT OF SALIENT FEATURES. (SECTION 219)
?
The provisions of this section are applicable to all companies, whether public or private, and whether having share capital or not. Any member or debenture holder is entitled on demand to be furnished, free of cost , with a copy of balance sheet and other documents . There is no time limit prescribed for making the demand.
?
?
17
12) RIGHT OF THE SHAREHOLDERS TO APPOINT PROXY (SECTION 176)
?
This provision is not applicable to a company unless it is a subsidiary of a public company and also to companies limited by guarantee not having a share capital unless their articles provide for proxy voting. The Act does not provide proxy right to speak at a meeting, and a proxy is not entitled to vote as well except on a poll
?
18
13) RIGHT OF SHAREHOLDERS TO CONVENE EXTRA ORDINARY GENERAL MEETING (SECTION 169)
?
Section 169 of the Act empowers specified number of shareholders the right to convene an extraordinary general meeting of the company.
?
In the above situation it is obligatory on part of directors to call extra ordinary general meeting provided such requisition is made by holders of not less than one tenth of the equity capital carrying voting rights.
19
14)APPOINTMENT OF DIRECTORS (SECTION 255)
?
The directors must be appointed by the shareholders in a general meeting. In case of a private company, which is not subsidiary of a public co., if the articles are silent as to the appointment of directors , or do not specifically provide for the appointment of directors otherwise than in a general meeting then the directors can be appointed in a general meeting by the shareholders.
20
?
15 )REMOVAL OF A DIRECTOR BY SHAREHOLDER (SECTION 284)
?
Where the shareholders feel the policies pursued by the directors or any one of them are not to their liking, they have the option to remove the directors by passing an ordinary resolution in the same way as they have the right to appoint directors by passing an ordinary resolution. A company may, by ordinary resolution passed in general meeting after due receipt of a special notice remove a director before the expiry of his term of office. The notice must disclose the grounds on which the director is proposed to be removed.
21
?
?
16) PREVENTION OF OPPRESSION AND MISMANAGEMENT (SECTION 397)
?
Whenever the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, an application can be made to CLB.
?
Alternatively an application can be made under section 397 when facts would justify that an winding up order on the ground of “just and equitable” is maintainable but the winding up would unfairly prejudice the applying member .
22
17) INVESTIGATION IN THE AFFAIRS OF THE
COMPANY
?
Section 235(2) of the Act empowers the NCLT to consider an application from a specified number of shareholders and to declare that an investigation be conducted into the affairs of the company.
?
The shareholders competent to make an application to the NCLT in case of a company having share capital not less than 200 members holding not less than 1/10 the of the voting rights therein.
A single member holding 10% shares in the company is 23 eligible to make a petition under this section
?
18) WINDING UP
?
Section 439(1)(c ) says that a contributory* can petition a court for winding up in certain circumstances. The court has complete discretion whether to order winding up on taking totality of circumstances in account.
?
*A contributory includes a holder of fully paid shares
24
SHARE IN CAPITAL ON WINDING UP
?
In the event of winding up or any other arrangement of repayment of capital, there is a preferential right on the preference shareholders to be repaid the amount of capital paid- up on such share. If after that there is some asset left the equity shareholders are paid their paid-up capital. If even after that there is some surplus left as a general rule it is only the equity shareholder is entitled to a share in it, unless provided in the articles of the company(like participatory preference shares) 25
?
?
THANK YOU
26
doc_494094440.pptx
The presentation describing rights of shareholders under company's act 1956.
RIGHTS OF SHAREHOLDERS UNDER COMPANIES ACT,1956
1
SUPREME COURT SAYS…
“ By a share in a company is meant not any sum of money but an interest measured by a sum of money and made up of diverse rights conferred on its holders by the articles of the company which constitutes a contract between him and the company” CIT Vs United Vaccuum Oil [1966]
2
The Supreme Court in a very important case held that “a shareholder has an undoubted interest in a company, an interest which is represented by his shareholding. Share is a moveable property with in the attributes of such property”. LIC of India Ltd. Vs Escorts Ltd(1986)
3
IMPORTANT RIGHTS OF THE SHAREHOLDER
To elect director and thus to participate in the management through them. ? To vote on the resolutions at meetings of the company. ? To enjoy the profits of the company in the shape of dividends. ? To apply to the court in the case of oppression. ? To apply to the court for winding up of the company. ? A share in the surplus on winding up. ? To apply to the court for relief in case of mismanagement.
?
4
1)RIGHT TO DIVIDEND AND SHARE IN
SURPLUS PROFITS
?
The Companies Act,1956 does not give any specific power to the companies registered there under to declare and pay any dividend The power to pay dividend is inherent in a company and is not derived from the Companies Act or the Memorandum or Articles of Association although the Articles generally regulate the manner in which dividends can be declared
?
5
RIGHT TO DIVIDEND(CONTD..)
No necessity to declare dividend every year ? Dividends paid out of divisible profits ? According to section 205 dividends can be declared out of the following three sources: • Current profits • Past reserves created out of profits or credit balance in the profit and loss account brought forward. • Out of moneys provided by the government if any
?
6
2) VOTING RIGHTS OF EQUITY SHAREHOLDERS (SECTION 87(1))
?
Provision is applicable only in case of a public company or a private company which is subsidiary of a public company. Right of equity shareholders to vote cannot be prohibited on the ground that he has not held his shares for any specified period before the meeting or on any other ground.
?
7
EXCEPTION TO VOTING RIGHTS (SECTION 181)
Non-payment of calls by a member ? Other sum due against the member ? Where the company has exercised the right of lien on his shares
?
In case of a private company there may be placed certain conditions on the voting rights of the equity shareholders
8
3) ALL EQUITY SHAREHOLDERS ARE
ENTITLED TO RECEIVE FULLY PAID BONUS SHARES
9
4) ALL EQUITY SHAREHOLDERS ARE ENTITLED TO
RECEIVE OFFER TO SUBSCRIBE TO FURTHER ISSUE OF CAPITAL ON RIGHTS BASIS.
(SECTION 81(1))
?
When „rights shares? are allotted “such further shares shall be offered to the persons who at the date of the offer, are holders of the equity shareholders of a company, in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date”
10
5) RIGHT TO RENOUNCE RIGHT SHARES(SECTION 81(1C))
?
An equity shareholder can renounce his shares in favour of a third person unless the articles of the company otherwise provide
11
6) ANY MEMBER CAN ASK FOR COPY OF
MEMORANDUM AND ARTICLES OF ASSOCIATION (SECTION 39)
?
The section requires that every agreement and every resolution referred to in section 192 should be embodied in the Memorandum or Articles and on being required by a member and within seven days of such requirement a copy of them should be furnished to him. Section 391 also requires that a copy of the order of Court under that section approving of a compromise or arrangement with creditors and/or members or sanctioning the reconstruction or amalgamation.
12
?
7) RIGHTS OF SHAREHOLDERS IN RELATION TO THE
AFFAIRS OF THE COMPANIES
?
The Companies Act has conferred wide powers to the equity shareholders to overlook the affairs and the management of the company, to see that the company works properly.
13
8) EVERY MEMBER HAS RIGHT TO INSPECT
DOCUMENTS AND REGISTERS TO BE KEPT BY THE COMPANY UNDER THE SAID ACT AND ASK EXTRACTS THEREFROM.( SECTION 167)
?
The underlying policy is to exercise the power only where the management is found to be unwilling to convene an AGM of the company, with a view to keeping the shareholders in the dark about the affairs of the company or where the management is unable to convene the meeting due to party friction or other like reason
14
9 ) CORPORATE BODIES BEING MEMBERS OF THE
COMPANY CAN APPOINT REPRESENTATIVES TO ATTEND GENERAL MEETINGS.(SECTION
?
187)
It is necessary for this power to be exercised that the company?s name is in the in the register of members of the company whose meetings are to be attended.
Only one representative can be appointed by corporate bodies irrespective of the amount of shareholding.
15
?
10) EVERY MEMBER HAS RIGHT TO INSPECT
MINUTES OF GENERAL MEETINGS AND ASK FOR EXTRACT THERE FROM. (SECTION 196)
?
A separate book should be kept for minutes of general meetings.
A member is entitled to a copy of the minutes of proceedings of general meetings within seven days after requesting for it. The right to inspect or be furnished with a copy of the minutes accrues only after their entry in the books kept for the purpose within thirty days of the conclusion of the meeting as provided in section 193.
?
?
16
11) EVERY MEMBER IS ENTITLED TO HAVE COPIES OF ACCOUNTS AND AUDITORS’
REPORT OR STATEMENT OF SALIENT FEATURES. (SECTION 219)
?
The provisions of this section are applicable to all companies, whether public or private, and whether having share capital or not. Any member or debenture holder is entitled on demand to be furnished, free of cost , with a copy of balance sheet and other documents . There is no time limit prescribed for making the demand.
?
?
17
12) RIGHT OF THE SHAREHOLDERS TO APPOINT PROXY (SECTION 176)
?
This provision is not applicable to a company unless it is a subsidiary of a public company and also to companies limited by guarantee not having a share capital unless their articles provide for proxy voting. The Act does not provide proxy right to speak at a meeting, and a proxy is not entitled to vote as well except on a poll
?
18
13) RIGHT OF SHAREHOLDERS TO CONVENE EXTRA ORDINARY GENERAL MEETING (SECTION 169)
?
Section 169 of the Act empowers specified number of shareholders the right to convene an extraordinary general meeting of the company.
?
In the above situation it is obligatory on part of directors to call extra ordinary general meeting provided such requisition is made by holders of not less than one tenth of the equity capital carrying voting rights.
19
14)APPOINTMENT OF DIRECTORS (SECTION 255)
?
The directors must be appointed by the shareholders in a general meeting. In case of a private company, which is not subsidiary of a public co., if the articles are silent as to the appointment of directors , or do not specifically provide for the appointment of directors otherwise than in a general meeting then the directors can be appointed in a general meeting by the shareholders.
20
?
15 )REMOVAL OF A DIRECTOR BY SHAREHOLDER (SECTION 284)
?
Where the shareholders feel the policies pursued by the directors or any one of them are not to their liking, they have the option to remove the directors by passing an ordinary resolution in the same way as they have the right to appoint directors by passing an ordinary resolution. A company may, by ordinary resolution passed in general meeting after due receipt of a special notice remove a director before the expiry of his term of office. The notice must disclose the grounds on which the director is proposed to be removed.
21
?
?
16) PREVENTION OF OPPRESSION AND MISMANAGEMENT (SECTION 397)
?
Whenever the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, an application can be made to CLB.
?
Alternatively an application can be made under section 397 when facts would justify that an winding up order on the ground of “just and equitable” is maintainable but the winding up would unfairly prejudice the applying member .
22
17) INVESTIGATION IN THE AFFAIRS OF THE
COMPANY
?
Section 235(2) of the Act empowers the NCLT to consider an application from a specified number of shareholders and to declare that an investigation be conducted into the affairs of the company.
?
The shareholders competent to make an application to the NCLT in case of a company having share capital not less than 200 members holding not less than 1/10 the of the voting rights therein.
A single member holding 10% shares in the company is 23 eligible to make a petition under this section
?
18) WINDING UP
?
Section 439(1)(c ) says that a contributory* can petition a court for winding up in certain circumstances. The court has complete discretion whether to order winding up on taking totality of circumstances in account.
?
*A contributory includes a holder of fully paid shares
24
SHARE IN CAPITAL ON WINDING UP
?
In the event of winding up or any other arrangement of repayment of capital, there is a preferential right on the preference shareholders to be repaid the amount of capital paid- up on such share. If after that there is some asset left the equity shareholders are paid their paid-up capital. If even after that there is some surplus left as a general rule it is only the equity shareholder is entitled to a share in it, unless provided in the articles of the company(like participatory preference shares) 25
?
?
THANK YOU
26
doc_494094440.pptx