Voting Rights of Shareholders

Voting rights of shareholders

This article seeks to elucidate the concept of voting rights of shareholders.

Voting rights of shareholders

Investors have specific rights whenever they purchase company shares. Voting on specific corporate issues is one of these important rights. The percentage of his shares in the paid-up equity share capital of the corporation will determine his voting rights. Therefore, if a shareholder holds 51% of the company’s stock, he will be able to control the corporation with a majority vote. The Company’s Act 2013 Introduction of Section 47 of the 2013 Companies Act Every shareholder who holds equity shares in a business limited by shares is entitled to one vote per equity share. Section 43(a) of the Companies Act of 2013 allows for the modification of rights; for private limited companies, section 47 is not applicable unless specified in the company’s memorandum or articles .

voting rights to the shareholders under Section 47. This right includes the ability to elect directors and make suggestions for significant changes that could affect the firm.

Methods of Voting

There are four ways to cast a vote in a company: by displaying hands, through postal ballot, by technological means, and by polling.

  • Voting by displaying hands- At the company’s annual general meeting, votes may be cast via a show of hands. Each shareholder will then have one vote, regardless of the number of shares he owns (Section 107).
  • Voting by poll – The members may request a poll if the number of members present and voting holds at least a tenth of the total voting power or a stake worth at least Rs. 5 lakh or more (Section 109).
  • Electronic voting: Every listed company with more than 1000 shareholders is obligated to provide its shareholders with the option of e-voting (Section 108).
  • Voting by postal ballot: Every publicly traded company must give shareholders who lack access to e-voting the opportunity to vote by postal ballot (Section 110)

Importance of Voting shares

Generally, companies allot more than one type of share in order to concentrate voting power in a small group of individuals. This concentration of power is also done in order to prevent any hostile takeover by the shareholders who are not the founders or company leaders. They may be enticed to sell their shares to another company at a premium. Therefore, the exclusivity of voting shares is prominent.  

Many stakeholders do not intend for a long-term strategy in the company or are uninterested in holding shares for the long run, which is a primary reason why companies choose to issue voting rights only to a select group of individuals. After all, someone with the intention of a short-term profit in mind may not vote for measures that secure and protect the long-term position of the company in the market. After all, a person who is only interested in making a quick buck may not support policies that would strengthen and safeguard the company’s position in the market over the long run.

Introduction of Section 47 of the Companies Act ,2013

Every shareholder who holds equity shares in a business limited by shares is entitled to one vote per equity share. Section 43(a) of the Companies Act of 2013 allows for the modification of rights; for private limited companies, section 47 is not applicable unless specified in the company’s memorandum or articles.

There are two types of share capital that the corporation may have.

  • Equity share capital
  • Preference share capital

Prevailing sections on voting rights

  • Section 47 of the Companies Act, 2013
  • Section 43 of the Companies Act, 2013
  • Section 50(2) of the Companies Act, 2013
  • Section 188(1) of the Companies Act, 2013
  • Section 106 of the companies act, 2013

Act on Voting rights

The company has two different types of shareholders: equity shareholders and preference shareholders.

  1. The Companies Act of 2013’s Section 47 specifies both parties’ voting rights.
  2. In accordance with section 47(1)(a) of the Act [Notice must be given to each equity holder in accordance with section 101 of the Companies Act, 2013], every equity shareholder has the right to attend and vote at any general meeting held by the company.
  3. According to Section 47(1)(a) of the Companies Act of 2013, each person’s voting power in a poll shall be proportional to their ownership interest in the company’s paid-up equity share capital.
  4. Every member who owns preference share capital in the company is only entitled to vote on the agenda or resolutions that directly affect the following rights related to their share: Resolution in case of company’s winding, Resolution for Company Repayment, Equity share capital reduction, Capital reduction for preference shares.

With the proviso that the voting rights of equity shareholders will be distributed in a manner consistent with the voting rights of preference shareholders and the ratio of the paid-up capital for equity shares to the paid-up capital for preference shares.

Further provided that such class of preference shareholders shall be entitled to vote on all resolutions submitted to the Company where the dividend in respect of such class of preference shares has not been paid for a period of two years or more.

References

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