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Shareholder Rights under Companies Act, 2013


Shareholder Rights under Companies Act, 2013

Shareholders of a company are the owners of the company owning equity shares issued by the company. Shareholders of a company are granted various rights and protections under the Companies Act, 2013. In this article, we look at those rights.

Changes to MOA or AOA

Memorandum of Association or Articles of Association of a Company can be amended only in a general meeting of the company, which can be convened by providing sufficient notice to the shareholders of the company. All shareholders have a right to vote on amendments relating to changes to MOA or AOA. Some amendments require a majority vote of 75% of shareholders.

Convene General Meeting

The Board of Directors of a company requires to convene an extraordinary general meeting (EGM) if shareholders holding 10% of the paid-up capital of the company a request for an EGM. The board requires to convene EGM within 21 days of the date of request by shareholders on a date not less than 45 days from the date of the request for EGM. In case the Board of Directors fails to call for an EGM within the time provided, then the shareholders can themselves call for an EGM.

Attend and vote at General Meeting

All companies are required to hold an annual general meeting every year, with no more than 15 months elapsing between two annual general meetings. All shareholders of a company have a right to:

  • receive a notice convening annual general meetings and
  •  extraordinary general meetings and to
  • vote at such meetings against each resolution on such meetings.

Transfer Shares

Shareholders can transfer shares held by them in the company freely except the board refuses to register a transfer of partially paid shares or board disqualifies the transferee. However, a private limited company may, by its articles of association, restrict the transfer of shares, and provide preemptive rights to its members for purchasing shares by the transferee.

Receive Dividends

A company can pay dividends for any financial year out of the profits of the company for that year arrived at after providing for depreciation or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or out of both. The declaration of dividends is subject to shareholder’s approval at an annual general meeting. Dividends are payable within 30 days from the date of the announcement. In case of any unpaid dividends are transferrable to a special dividend account of the company in a scheduled bank.

Minority Shareholders Protection

In case of oppression or mismanagement of the affairs of the company by majority shareholders, minority shareholders enjoy the protection and the right to relief from oppression. If 100 or more shareholders, or a number representing not less than 10% of the total number of shareholders, can apply to the Company Law Board if the affairs of the company are being conducted in a manner prejudicial to the public interest or company’s interest or a manner oppressive to any shareholder. If found fit, the Company Law Board can pass any order it deems fit, including directing majority shareholders to buyout shared held by the oppressed minority.