Be an empowered and informed shareholder by understanding your rights
The Sentiment
News, opinion and satire shaping investor sentiment around ASX-listed companies
If you just bought some shares in A2 Milk, does having some ownership in the company mean you have a lifetime of milk supply? Are shareholders of allied health company Healthia eligible for discounts on physiotherapy appointments?
Though these scenarios are unlikely to happen (unfortunately you’d have to pay full price for your milk), it is important to understand the rights and privileges that come with being a shareholder. With the full year reporting season just right around the corner, understanding rights as a shareholder can empower shareholders in terms of protecting their interests and making informed decisions as owners of a company.
Common Shareholders’ Main Rights
In Australia, shareholders of public companies have various rights and entitlements. These include:
Voting power includes electing directors, director remuneration, further issues of shares, share buybacks, and approving significant corporate decisions for fundamental changes affecting the company such as mergers or liquidation. Voting takes place at the company’s Annual General Meeting (AGM). If the shareholder cannot attend, they can do so via proxy and mail in their vote. Investors consider an AGM as a good opportunity to both have their say and to hear what senior management has to say.
Companies have the option to convene Extraordinary General Meetings (EGMs) to address urgent matters that cannot wait until the AGM. EGMs provide an opportunity for shareholders to vote on time-sensitive issues and make important decisions outside the regular AGM schedule.
As the business thrives, common shareholders hold a portion of its valuable assets. A company’s positive performance and prospects usually lead to an increase in its overall worth, causing the value of each share of ownership to rise. Owning shares in a profitable company means the value of your ownership would consistently grow, even exceeding your initial investment.
Shareholders are allowed to “transfer” ownership by trading their stock on an exchange. The right to transfer ownership might seem mundane, but the liquidity provided by stock exchanges is important. Liquidity—the degree to which an asset or security can be quickly bought or sold in the market without affecting its price—is one of the key factors that differentiates stocks from an investment such as real estate which can take months to be converted into cash.
Shareholders in public companies have the right to receive dividends, which are payments made from the company’s profits. Dividends can provide a source of income for shareholders in addition to the potential growth in the value of their shares. The company’s management decides whether to reinvest profits or distribute them as dividends, and shareholders are entitled to their portion of declared dividends.
领英推荐
Shareholders have the right to access certain company information, including financial reports, annual reports, and other disclosures. Reading about the company financials is a good way for shareholders to keep on top of the company performance and future growth prospects.
Shareholders preemptive rights are the privilege given to existing shareholders to purchase additional shares of a company before they are offered to other parties. This allows shareholders to maintain their proportional ownership and avoid dilution of their ownership percentage. If shareholders choose not to exercise their preemptive rights, the new shares can be offered to other potential buyers. These rights provide shareholders with the opportunity to invest additional capital and participate in the company’s growth.
Shareholders have the right to take legal action on behalf of the company if they believe the company’s directors have acted unlawfully or breached their duties. The right to sue for wrongful acts. Suing a company typically takes the form of a shareholder class-action lawsuit. For example, the case against financial institution AMP Limited. In 2018, AMP faced significant backlash and legal action following revelations of misconduct and improper practices during a Royal Commission inquiry into the financial services sector, which was brought on behalf of shareholders who had suffered financial losses due to AMP’s misconduct. AMP settled by compensating affected shareholders.
In the event of a company’s liquidation, shareholders have the potential to receive a portion of the remaining assets after all debts and obligations have been settled. However, when a company goes bankrupt, common shareholders are typically at the bottom of the priority list, with secured creditors, unsecured creditors, and preferred shareholders having higher priority for payment.
Disputes about your rights as a proprietary company shareholder
Shareholders in ASX-listed companies have certain rights, including the right to get information about the operation of the company and the right to request the company hold meetings of members, subject to certain conditions. If the company fails to provide this information or if it doesn’t hold general meetings, it can lead to a dispute between the company (and its directors) and members.
Disputes about your rights as a company shareholder can involve:
A company’s constitution functions as a contract, outlining the rights and obligations of the company, its directors, and its members. Breaches of the constitution are resolved through private action or court intervention. Members have certain rights, such as accessing the company register and requesting meetings with directors.
However, shareholders’ control over a company is limited, and significant decision-making power is generally held by shareholders with substantial ownership stakes. While shareholders have voting rights, their influence may be diluted by the large number of shareholders and their individual votes, making it challenging for one shareholder to exert significant control over the company.