As part of our series of blogs on key stakeholders in a private company limited by shares, such as the Company Director, we will now look at the role of the shareholder.
Whilst a company may amend the roles fulfilled by directors and shareholders in their constitution or articles, this blog focuses on the standard company articles (in accordance with the UK Companies Act 2006 and the Irish Companies Act 2014).
The Role Of A Shareholder
The shareholders are the owners of the company and provide financial backing in return for potential dividends over the lifetime of the company. A person or corporation can become a shareholder of a company in three ways:
- By subscribing to the memorandum of the company during incorporation
- By investing in return for new shares in the company
- By obtaining shares from an existing shareholder by purchase, by gift or by will
Subscribers are usually the party who initiate the incorporation of a company and automatically become the first shareholders after incorporation.
While it is possible for shareholders to transfer their shares, it is also possible for private companies to place restrictions on this process in the articles of the company.
A shareholder doesn’t manage the day to day business of the company as this is handled by the board of directors.
However, decisions in relation to the company’s goals and overall performance often require shareholder approval, which include (but are not limited to) the following:
- Changes to the constitution of the company
- Declaring a dividend
- Approving the financial statements of the company
- Winding up of the company by way of voluntary liquidation
Shareholder decisions can be made by resolution or at general meetings, where shareholders discuss the company’s performance and vote on relevant resolutions. There are two types of general meetings, annual (AGM), which are held once a year and extraordinary (EGM), which take place when required.
When a shareholder is unable to attend a general meeting it is possible for them to appoint a proxy in their place.
Though it is not possible for shareholders to amend decisions made by directors or interfere with the running of the company, they can convene a general meeting and raise a motion to remove a director, or the full board, or they can amend the articles to restrict the director’s powers.
There are two types of shareholder resolutions, ordinary and special, and both have distinct rules and requirements.
An ordinary resolution requires a simple majority of the members present to vote in favour of the resolution and this is acceptable for the majority of shareholder decisions.
For UK and Irish private limited companies, special resolutions require the approval of 75% or more of its members
Votes at general meetings can be cast either by way of a show of hands or by poll. A show of hands results in every shareholder or proxy present having one vote only, while a poll allows each shareholder to have one vote for each share they hold.
A shareholder’s liability is limited as the company’s debts are the responsibility of the company itself. The shareholder is liable only for the price they paid for the shares however it should be noted that if the shares are partially paid, the shareholder will be required to pay the remaining balance, either when the directors or an administrator (if the company is in financial difficulty) call up the unpaid amount.
The above is a brief introduction to the role of a company shareholder and how decisions are made, however it should again be noted that not all companies are identical and some may have amended their own rules by preparing bespoke articles. Therefore it is vital that the company’s articles are reviewed before shareholder approval is sought.