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What is a shareholder and what do they do?

What is a shareholder and what do they do?

by | Aug 13, 2015 | Blog, Company Formation Services, Uncategorized | 0 comments

What do shareholders of limited companies do?

The shareholders are beneficial owners of the limited companies. Shareholders invest in companies in return for the equity shares. It allows them to vote on management and the direction of business. It also allows them to receive portion of the profits with relation to the percentage of their ownership. Shareholders also have a responsibility to contribute according to value of their shareholding, in case company is not able to pay the creditors. A number of small companies have only a single shareholder and he is mostly the sole director of company as well. Alternatively, there can be many directors and shareholders of companies, who might or might not be same people.

What is the difference between Shareholders, members and subscribers?

Subscribers are the first shareholder in company as they add or subscribe their names to memorandum of the association during the process of company formation. By doing this they agree to form and become a part of company by taking at least one share.

The shareholders are also known as members. It doesn`t matter if they join the company during incorporation or after it.
The subscribers usually have the same rights as those people who become the shareholders after the formation of company. It is determined by the percentage of their shareholding, the particulars of the rights attached to the shares, and terms of the shareholders` agreement which was drawn up.

Responsibilities and rights of shareholders:

The shareholders do not participate in the day to day running of the company unless they are directors as well. Only when the directors don`t have authority to make decisions, the shareholders will make the decisions. Typically, following are the responsibilities and rights of shareholders:

• To take at least one issued share in the limited company
• In case the company is not able to pay the creditors, shareholders agree that they will contribute value of the share which they own. It is called limited liability.
• Having power to change name of company.
• Having power to change structure of company.
• Appointment and removal of directors.
• Granting the rights and the powers to the directors of company.
• Issuing shares after the formation of the company.
• Transferring the share they own, to some other people.
• Changing the particulars of the rights attached with shares.
• Approving the substantial investments.
• Receiving the profits of company according to the value and number of the shares they own (dividends payments).

Can a shareholder also be a director of the company?

Shareholders can be appointed the directors of the company if they are 16 years of age or more. A number of companies are owned and managed by single person serving as both the sole shareholders as well as the sole director.

Can one company hold share in another company?

The limited company shareholder may be individual person or any business entity such as a partnership, an organization, another company, etc. These non-human shareholders are known as corporate shareholders. There will be a representative who will be appointed in order to act on the behalf of corporate body. He will attend the general meetings, exercise the voting rights, sign resolutions, and will perform other shareholder duties as well. The position is usually held by director of corporate body.

Benefits of corporate shareholder:

Number of benefits may be provided by the established corporations. As they have greater influence, resources and experience from which smaller businesses can benefit. The established corporations can provide the capital in order to buy equipment or to help the business grow. These large companies often have good established relationships with the suppliers which can provide the small business with better bargaining power. The involvement of such established corporations can have a positive influence on the other firms, lenders and investors to have business relationships with smaller company. They can also offer some valuable expertise in the corporate governance, branding, strategy, research and market trends, investment, legal matters, economic growth and sustainability.

Important points:

• In case corporate shareholder owns above 50% of the companies issued share capital, It will become the holding company or parent company with the majority control. Other company will then become subsidiary of this corporate share holder.
• In case you sell large amount of hares to some corporate shareholder, the non-corporate shareholders who have smaller shareholdings might get overpowered by majority votes of corporate shareholder.

Can a new shareholder be added after the formation of the company?

After the formation of company the limited companies may bring in new shareholders. This can be done in two ways. The ownership of the existing shares may be transferred from present shareholders to new shareholders; or additional shares might be issued by a company in order to sell to the new shareholders.
It is easier to transfer share than to issue new shares, but it will depend on whether there are any share available for transfer.

Are the details of shareholders displayed on public records?

Names of all the shareholders of a company are displayed on the Companies House`s public record. It is required from the subscribers to give the full name along with contact address to the Companies House. Those shareholders who join after the incorporation of the company only need to provide the name. The details of the issued share capital of the company are also disclosed on the public record.

In case one prefers to keep his name off public register of the companies, he may protect his privacy by appointing a nominee.

What is shareholders agreement?

The shareholders agreement is recommended highly for limited companies that have more than single shareholder, however, it isn`t a requirement of law. It is a legally binding agreement between the shareholders which expands on general contents of articles of the association by defining responsibilities and the specific rights of shareholders, how the company is to be managed, and how the decisions are to be made.

It is a very effective way to make sure that all the members are protected equally and they are aware of the rights, obligations and restrictions in all the circumstances. Exact contents of the agreement may vary considerably from one company to another, but it is the principal purpose of this document to prevent conflicts among shareholders, and the protection of interests of the minority shareholders against voting powers of the majority shareholders.

Important issues covered by the shareholders agreement:

• The distribution of the profits of company – directors loans, dividends, and reinvestment in company.
• Appointment and removal of secretaries and directors.
• Restrictions and rights of the company directors.
• Salaries of directors.
• The prescribed particulars which are attached to the shares.
• Restrictions and procedures when issuing and transferring shares.
• Financial matters – loans, overdrafts, equity investments, etc.
• Protecting the rights of minority shareholders – For example: such company decisions which require the unanimous agreement of all the shareholders, not only the majority vote.
• Changing the structure or nature of business.
• Guidelines for dispute resolution.
• Guidelines for the legal proceedings.
• The information rights of the shareholders.

The shareholder agreement is confidential and private document – It is not displayed on the public record. It may be drawn up by solicitor before or after the formation of company, and the shareholders can alter it at any time. There are no specific rules regarding where the document should be kept.

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