What rights does a shareholder have?
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The rights any shareholder has in any particular company depend on the company's
memorandum and articles of association and the terms of issue of the shares.
The general situation is that in return for investing in a company a shareholder gets a bundle of rights in the company which may vary according to the type of shares acquired. Most companies only have one class of shares (ordinary shares) but the law in the UK is extremely flexible and allows any classes of shares to be created. This is done by setting out the different rights attached to the various classes (usually in the company's articles). What rights are attached to the different classes of shares is essentially a matter for the company to determine. The main rights which usually attach to shares are:
To attend general meeting and vote
Typically shares carry one vote each but there may be non-voting shares or shares with multiple votes. Some shares may carry the right to vote only in particular circumstances.
To a share of the company's profits
The distribution of profits is paid by means of a dividend of a certain amount
paid on each share. A dividend may be paid only if the company has made profits
and to the extent that it decides to distribute them. See related topic: What
is a dividend?
To a final distribution on winding up
If the company is wound up and all the creditors are paid, the remaining assets are available for division among the members. This may be in two stages: (1) a return of capital; (2) distribution of surplus capital. Some shares may be given a priority as to one or both of these.
That the company be run lawfully
i.e. in accordance with the Companies Acts, the general law and the company's constitution.
In most circumstances only the members of the company will have the legal right to sue to make the company act lawfully, and even they may be restricted in their ability to sue under the common law rule in Foss v Harbottle. This is a complex area beyond the scope of this database.
For legal definitions of shares, see: Borlands Trustee v. Steel Bros. [1901] 1 Ch 279 at p. 288; C.I.R. v. Crossman [1937] AC 26 at pp. 40-41, 51-52, 66.
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