The Roles and Duties of Shareholders

What are shareholders?

The shareholders of a company are its financial supporters; they provide finance to a company by purchasing shares in it, and through this become shareholders. This gives them certain rights as shareholders; they also have roles and duties to adhere to, which are set out in the Companies Act 2006 (or Companies Act relevant to the date that the company was formed). As shareholders of a company, they are protected from liabilities as the company is ‘limited’. Shareholders may or may not be directors of the company also. Whilst directors are in charge of running the day to day business of the company and making decisions, the shareholders have a few specific roles and duties to ensure they ultimately have control over the company.

Roles of the Shareholders

Major decisions which would have an effect on the shareholders’ rights are usually required, through the Companies Act 2006, to be approved by the shareholders at a general meeting called by the directors of the company.

Only certain acts can be done by the shareholders such as; removing a director from office, changing the name of the company, or authorising a service contract for a director which gives him job security for more than two years. In general, shareholders have little power over the directors and how they run the company, but their main role is to attend meeting and discuss what ever is on the agenda to ensure the directors do not go beyond their powers.

General Meetings

To fulfil the role of being a shareholder, a shareholder may require a general meeting to be called rather than simply have all decisions made through written resolutions. The directors will in fact call a general meeting, despite not being able to vote at the meeting, as this duty is solely for the shareholders. However, it is quite possible that directors will be shareholders as well and so will vote in the board meetings for directors and in the general meetings for shareholders. The directors may call a general meeting at any time for any reason and are entitled to attend and speak as are the shareholders.

Annual General Meetings

There is no longer a statutory requirement to hold an annual general meeting if the company is a private company, however the shareholders may request that one is held or the directors may call an annual general meeting if desired. Commonly the date of such a meeting will be fixed from year to year.

Under s.336 of the Companies Act 2006 public companies must hold an annual general meeting six months after its accounting reference date.

In small companies, it is often appropriate to have an annual general meeting where the shareholders are not all directors. It provides the shareholders the opportunity to review the company accounts and confront any directors with regard to any decisions they have made.

The chairman of the meeting

There is a presumption that the chairman of the general meeting will usually be the same as the chairman of the board meeting. His task is to supervise the meeting and keep the general structure of it in order. The chairman will declare whether a resolution has passed or failed after voting has taken place.

Duties of Shareholders

The main duty of shareholders is to pass resolutions at general meetings by voting through their shareholder capacity. This duty is particularly important as it allows the shareholders to exercise their ultimate control over the company and how it is managed. Shareholders can vote in one of two ways: on a show of hands or through a poll vote where each vote will be proportionate to the amount of shares held by each shareholder. A show of hands is usually the preferred method of voting that takes place at general meetings.

There are two resolutions that can be voted on at a meeting: an ordinary resolution, or a special resolution.

Ordinary Resolution

An ordinary resolution is passed by the shareholders if a simple majority of the shareholders present at the meeting vote in favour of the proposal. Therefore more than 50% of the votes cast will have to be favour, usually displayed through a show of hands.

Special Resolution

For a special resolution to be passed, a 75% majority must vote in favour. A special resolution is only required if it is stated in statute or it is in the company’s articles, which suggest a special resolution would have to be used for a particular vote rather than an ordinary resolution. If there is no specific mention of what type of resolution should be used, the presumption is that an ordinary resolution would be required.

The chairman’s casting vote

The chairman does not have a casting vote in addition to any other vote he may have. The casting vote only operates if, without it, the number of votes for and against the resolution is equal. Where no chairman has been appointed by the company, the idea is that if there is deadlock at the voting stage, the negative will prevail and the proposed resolution will fail.