A Guide to Shareholder Rights

In the world of business, shareholders stand as the backbone of a company. Their investments, whether large or small, fuel the ambitions and visions of corporations. As such, understanding the rights that come with being a shareholder is not just a matter of legal compliance but also a means to ensure that one’s investment is protected and nurtured. This guide sheds light on the pivotal rights of shareholders, including shareholders’ rights against directors and shareholders’ rights against the company’s auditors.

What Exactly Are Shareholders and Shareholder Agreements?

Shareholders are the lifeblood of a company. They can be individuals, institutions or even other companies that own shares in a corporation. Their stake gives them a say in the company’s direction and future. A shareholder agreement, on the other hand, is a legal document that delineates the rights, responsibilities and obligations of shareholders. It acts as a roadmap, guiding shareholders through the complexities of corporate governance and ensuring that their interests are always at the forefront.
 
What Rights Do Shareholders Generally Possess?

Every shareholder, regardless of the size of their stake in a company, is entitled to certain fundamental rights. These rights ensure that shareholders have a say in the company’s operations and can actively participate in its growth and direction. This includes:

• Right to Attend Meetings: Shareholders have the privilege to be present at company meetings, ensuring they’re always in the loop about the company’s direction and decisions.
• Right to Receive Annual Reports: Transparency is key in any business relationship. Shareholders are entitled to receive annual reports, giving them insights into the company’s financial health and performance over the year.
• Right to Receive Dividends: When a company prospers, so do its shareholders. They have the right to receive dividends, which are a portion of the company’s profits distributed to its shareholders.
• Right to Participate in Decisions: Certain decisions, either mandated by the company’s constitution or by statute, are reserved exclusively for shareholders. This ensures that shareholders have a say in pivotal company decisions.
• Right to Inspect Company Records: Knowledge is power. Shareholders have the right to inspect the company’s minute books and securities registers, ensuring they have all the information they need about the company’s operations and decisions.

However, it’s essential to note that not all shareholder rights are set in stone. Shareholder rights may also differ depending on the class of Shareholding. Shareholder rights can be influenced by various factors, including:

• The Company’s Constitution: Depending on the nature of the company (whether it’s proprietary, public, or listed), its constitution can vary the rights of shareholders.
• Terms of Issued Shares: The specific shares issued to a shareholder can come with their own set of rights and limitations.
• Shareholders’ Agreement: Custom agreements between shareholders can dictate specific rights, ensuring flexibility and clarity in the company’s governance.

What Rights do Shareholders Have Against Directors?

Appointment of Directors

• Proprietary Companies: Directors can be elected by a resolution of shareholders at an AGM/general meeting or by the directors. A simple majority of votes is required for the election. If the board of directors elects a director, shareholders must confirm this election within two months at an AGM/general meeting, or the person ceases to be a director. The company’s constitution can modify these rules.
• Unlisted Public Companies: The appointment process mirrors that of proprietary companies. However, if directors elect the director, shareholders must confirm the election at the company’s next AGM.
• Listed Companies: These companies must hold an annual director election. A director must stand for re-election either by the third annual meeting since their appointment or three years from their appointment date. This rule doesn’t apply to sole managing directors but is applicable if there’s more than one managing director.

Removal of Directors

Directors of proprietary companies can be removed by the board or shareholders through an ordinary resolution. The company’s constitution can modify this rule. For public companies, both listed and unlisted, only a resolution of the members can remove directors. Other directors cannot remove them.

In the corporate world, directors play a pivotal role in guiding an organisation’s trajectory. Their decisions can shape the company’s future, influence its culture and determine its success. This guide delves into the responsibilities of these roles, ensuring clarity and compliance.

Can Shareholders Challenge a Resolution of the Board of Directors?

Shareholders can dispute a director’s resolution if they believe the resolution is contrary to the interest of the members, oppressive or unfairly prejudicial. The applicant who seeks such relief must hold at least one share. Shareholders can also convene an AGM/general meeting to propose a resolution to remove directors if they believe the directors aren’t acting in their best interests.

What Rights do Shareholders Have Against Auditors?

Appointment and Removal of Auditors:

• Proprietary company directors can appoint an auditor if not done at an AGM/general meeting.
• Public company directors must appoint the first auditor within one month of registration unless done at an AGM/general meeting. This auditor holds office until the first AGM.
• Proprietary company auditors can be removed by shareholders at an AGM/general meeting with two months’ notice.
• Public company auditors can be replaced at an AGM/general meeting by special resolution, given certain conditions.
• Listed companies need to rotate auditors, with specific ineligibility periods.

Restrictions and Requirements for Auditors:

•  Companies can appoint individuals, audit firms or audit companies as auditors.
• Public companies must appoint a registered auditor, with exceptions.
• Auditors must be independent, with specific conflicts of interest outlined in the Corporations Act 2001 (Cth).
• The Corporations Act also details relationships to consider for potential conflicts and requirements for auditor independence.

Seeking Guidance About Shareholder Rights

Being a shareholder is more than just owning a piece of a company; it’s about actively shaping its future. By understanding and exercising their rights, shareholders can ensure their investments thrive. For those seeking guidance or have further queries about shareholder rights or any other legal intricacies, Anumis Legal can help. For your complimentary chat or to book an appointment, call our commercial lawyers at Anumis Legal on 07 5455 6347 or book your free chat, now.

If you’re looking for a commercial lawyer on the Sunshine Coast, check out our Commercial Law page to discover more about how Anumis Legal can assist your business and commercial ventures.