When someone wants to invest in a company by being its shareholder, then they have to sign an agreement. This agreement will specify the entitlements and commitments of the shareholder if they want to own the shares of a company. Such an agreement is called the shareholders agreement.
What are the entitlements of the shareholder?
Investing as a shareholder in a firm, automatically makes one eligible to enjoy various benefits and rights. These entitlements will differ from one company to another and also inside the same company based on the level of shares that one owns. The law of Australia grants permission to have different tiers of shares in a company but almost all companies have only one tier of shares that are called the ordinary shares.
The company that you own shares in, will get to fix and regulate the rights of the shareholders. If seen broadly, then most shareholders can enjoy the rights that are listed below:
1. Any declaration by the company will be relayed to the shareholders
2. Meetings in the company regarding shares will have to be attended by the shareholders.
3. Important decisions that undergo a voting process will have to get votes from the shareholders as well.
4. The ownership of shares by a new member has to be approved in most cases by the existing shareholders.
5. Shareholders receive an annual allowance from the company.
6. Shareholders get to participate in any sort of collaborative action like buybacks of shares.
Sources to learn about rights of shareholders
You can get to know all about the rights of shareholders from the following sources:
1. The main rules of the company or its constitution.
2. The agreement that shareholders sign with the company.
3. The company’s codification of laws.
Being a shareholder of a company, you should make yourself familiar with the codification of the laws of the company in addition to the shareholders contract. The shareholders agreement often charts out rules that the constitution of the company overlooks. If you want to be aware of the entitlements you have, as a shareholder, then you should carefully read the agreement.
The agreement may chart other benefits that a shareholder can avail of:
1. The shareholder can have the possibility of earning a position in the company.
2. The company has to respect the confidential rules regarding the information you provide to them as a shareholder.
3. Shareholders can make sure that they do have competitive shareholders in the company.
4. Shareholders have a drag-along right by which, they can coax a minority shareholder to give their approval to sell the shares in the company.
Commitments of shareholders
A company acts legally under its own name rather than under the name of its shareholders. This gives the option to the shareholders of not being held accountable and they can choose to not follow all the liabilities. Usually, these are the commitments that shareholders have to follow:
1. When there are debts on the shares that the shareholders own.
2. Any commitments that are specifically lined out in the shareholders agreement or the constitution of the company.
3. If the shareholders are also the director of a company then they have to be accountable for their duties as a director of that company.
Constructing a shareholders agreement is a crucial issue and can have long term effects that will definitely affect the company in the future. At times, the terms change depending on the situations and this will alter the expectations of both the parties. This is why a shareholders agreement needs to be made with the approval and the consultation of experts in this field.
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