RESEARCH PROJECT ON

SHAREHOLDERS RIGHTS
IN THE MANAGEMENT OF THE COMPANY
SUBMITTED TO

CORPORATE LAW I
By
VENUGOPALAN. R
(Regd. No.BA0140074)
SUBMITTED TO

Prof. Mr. Shankar Kaarmukilan

Declaration

do

hereby

declare

that

the

project

entitled

Shareholders rights in the management of the

company submitted to Tamil Nadu National law school
in partial fulfilment of requirement of award of degree in
undergraduate in law is a record of original work done
by me under the supervision and guidance of Mr.
Shankar kaarmukilan department of Corporate law of
Tamil Nadu National law school and has not formed basis
for award of any degree or diploma or fellowship or any
other title to any candidate of any university.

Place: Trichy
Date: 01/11/2016
VENUGOPALAN.R
SECTION-B

Certificate
This is to certify that the project entitled Shareholders rights
in the management of the company submitted to Tamil
Nadu National law school in partial fulfillment of requirement of
award of degree of under graduate in Law done by Venugopalan. R
under the supervision and guidance of Mr. Shankar Kaarmukilan
department of Corporate law of Tamil Nadu National Law School.

Place: Trichy
Date: 01/11/2016

Acknowledgement

This project could not have been done without the help, guidance, and
support of few people who stood by my side from the very beginning
of this project.
Im very glad and grateful to Prof. Mr. Shankar Kaarmukilan who was
the initiative and inspired me to take up this project. His contribution to
this project is an immense one.
Im also grateful to my parents and friends who all stood as a pillar of
support for me during this entire research work. Their contribution to
this project is an indispensable one.

SHAREHOLDERS RIGHTS IN THE MANAGEMENT OF THE COMPANY

OBJECTIVE

The researcher objective in this project is,

1. To examine the rights of the shareholders given by the company
2. To examine how corporate governance is related to shareholders rights.
3. To examine the International Scenario of corporate governance related to shareholders
rights.
STATEMENT OF PROBLEM:
Which rights are been given to the shareholders of the company and are they really exercised?

HYPOTHESIS:
In order to conduct a research work, some important hypotheses are to be formulated. The
important points and assumptions are normally available through the formulation of hypothesis.
The major hypotheses developed on the basis of study of available literature and evaluation of
articles as well as the books referred is that: Shareholders are the real owners of the company and
get a real opportunity to exercise their rights connected with their participation in the company.

RESEARCH METHODOLGY
This is a Doctrinal Research project and the relevant material for this project has been collected
from the articles referred and as well as the books referred. Doctrinal Research is a research as it is
based on the principles. It is more based on the sources like books of the library, statutes and
through various websites. At this point of time it is pertinent to review the literature from where the
relevant material has been collected. For the Research Project the Researcher has collected the
relevant material from books on Companies Act 1956 and also from articles and reports.

REVIEW OF LITERATURE:

The researcher has extensively relied upon articles referred, the books referred. The companies act
explains the shareholders and the rights of the shareholders and the position of them in the
companies and the international scenario of the corporate governance related to the rights of the
shareholders.

Tentative Chapterisation
Chapter I
INTRODUCTION
Chapter II
SHAREHOLDER RIGHTS
Chapter III
INSTITUTIONAL SHAREHOLDERS
Chapter IV
INTERNATIONAL SCENARIO
Chapter V
CONCLUSION

CHAPTER I

INTRODUCTION
The world corporate governance has become a sensible measure for the long term success of the
company at present. There has been great interest in corporate governance because developing
good corporate governance is essential to restore economic vitality and fostering sustainable
economic growth and development.
For shareholders, effective Corporate Governance structures have become important criteria for
selecting the companies in which they wish to invest when making positive investment decisions.
As the investors are interested in long term benefits therefore they have now started to analyse the
corporate governance structure of the companies. The investors have now started comparing the
various companies that which company has implemented the various recommendations regarding
corporate governance as mentioned in various important codes.
The important purpose of corporate governance is to safeguard the shareholders rights in the
company and also to pay special attention that there should be equal treatment with the shareholder
of same category. Corporate governance practices have emerged in free market economies as a set
of structural arrangements with a aim of developing a relationship between the management of
companies and the interests of its shareholders. Subsequently, corporate governance concerns
extended to the interest of other stakeholders and eventually to society at large. Therefore a sound
corporate governance system requires that shareholders can actively participate in, and exert
influence on, corporate strategic decision-making. The two important principle of corporate
governance can be elucidate as:
The first principle:
The corporate governance practices should give the shareholders a real opportunity to exercise
their rights connected with their participation in the company.
The second principle:
The corporate governance practices should ensure equal treatment of shareholders who own the
same number of shares of the same type (category).

The shareholders are the owner of the company and by virtue of this they have various rights and
obligation in a company. Some of the basic rights in the company are ensuring adequate methods of
ownership registration, conveying or transferring shares, participating in the companys profits,
obtaining information on a timely basis, participating and voting in general shareholder meetings.
Including these rights there are various other rights of the shareholder and one of the most
important among all these is the right to take part in the management of the company. The most
important channel for shareholders to influence how the company has to run is to attend and vote at
the general assembly meetings.

CHAPTER II
SHAREHOLDER RIGHTS
PARTICIPATE IN GENERAL MEETINGS:
The shareholders are involved in taking major decisions about the company. These decisions are
basically taken in the general meetings. These decisions are in form of resolution. Every year
there is one meeting of the members has been organized and this meeting is called as the Annual
General Meeting.1 In addition to this if there is any emergency or need to transact urgent business
than an Extra Ordinary General Meeting is called. The main purpose of the annual general meeting
is that the ultimate control of the company is in hands of shareholders. AGM gives them an
opportunity to know about the working of the working of the company and to make suggestion for
the improvement and progress. They can even change the management if they are not satisfied.

VOTING RIGHT:
Voting at the general meetings of companies is the most valuable and fundamental mechanism by
which the shareholders accept or reject the proposals of the board of directors as regards the
structure, the strategy, the ownership and the management of the corporation. Therefore
shareholder voting is an integral part of the governance structure of publicly held corporations.
1 Section 166(1). Companies Act.

Requiring shareholder consent for any fundamental change in corporate policy is a safeguard for
the residual risk-bearers of a corporation against ex post expropriation by the management. The
right to vote assures the shareholders that without their approval the basic terms of their investment
cannot be altered. Also, vesting voting rights in shareholders is the only feasible method to
implement major improvements of corporate policy that affect the terms of their investment.

In other words the voting is the only mechanism available with the shareholders for exercising an
external check on the board and the management. It is important to ensure that those votes are cast
in a manner that is most consistent with the long-term best economic interests of the companys
shareholders. Right to vote is one of the most effective tools for promoting good corporate
governance. To maintain this effective tool all shareholders should receive equitable treatment,
including minority and foreign shareholders and all shareholders should be able to obtain effective
redress for violation of their rights. More specifically:

shares of the same class should have the same vote,

information on the voting right should be provided before the purchase of the share,

any changes in voting rights should be subject to shareholder vote,

custodians or nominees should cast votes as agreed upon with the beneficial owner of the
shares,

company procedures should not make it unduly difficult or expensive to cast votes,

insider trading and abusive self dealing should be prohibited, and

members of the board and management should be required to disclose any material interest
in transactions or matters affecting the corporation

Under the Indian Companies Act, all holders of equity shares as on the date of the Annual General
Meeting are entitled to vote. A members voting right are in proportion to his share of the paid up

capital in the company.2 In case of share issued with disproportionate voting right as permissible
under Section 86, the voting right will be as per the terms of the issue of the share.

Postal Ballot:
There is also a concept of postal ballot under the companies Act. The concept has been stated in the
section 192A which has been brought in to force on 15 th june 2001. The main idea behind postal
ballot is to confirm the corporate democracy. 3 This is like there are lakhs of shareholder spread
all over the country and it is not possible for all of them to be present in the meeting. Therefore to
remedy this situation this concept has been brought in this the shareholder can vote by post without
attending the general meeting.
Proxy:
If a shareholder of the company is unable to attend the meeting than the shareholder can appoint a
proxy to attend the meeting.4 Such another person may or may not be the member of the company.
A proxy is basically one acting for another. Proxy who has been appointed is entitled to attend the
meeting and can vote on behalf of the principal member. Proxy is acceptable in almost all part of
the world for example in Austria, Belgium, France, German and United Kingdom etc.
Along with this there is a new concept emerging and that is of Electronic sending of vote and some
countries have already adopted this concept. For example: Belgian law leaves it to the companies
and their by laws to decide whether shareholders can vote by mail or in person. In France Voting by
mail is permitted by the law. Shareholders may also vote by fax, as long as they also mail the
official ballot to the company.
Basically all these emerging concept of voting is to give effect to the voting right of the
shareholder. Because the only mechanism available with the shareholders for exercising an external
2 Section 87, Companies Act.
3 Datey V.S., Student Guide to Corporate Law (2002).
4 Section 176, Indian Companies Act.

check on the board and the management is voting. Therefore it is important to ensure that all the
votes have been casted properly.
APPOINTMENT OF DIRECTOR
The shareholders, who are the ultimate owner of the company are authorized only to take decision
in respect of major policy matter only to the extend specified in the Companies Act. There is a
divorce between the management and the ownership and therefore the shareholder cannot interfere
in the day to day management of the company.
For the same reason they appoint director to look over the company. Overall supervision and
control of affairs of the company is entrusted to director as appointed by the member. It is the duty
of the directors to pool their knowledge and experiences for the betterment of the company.
Shareholder has right to appoint the directors and to remove the directors as well.

CHAPTER III
INSTITUTIONAL SHAREHOLDERS
At present many countries of the world have institutional investors who are making up a significant
percentage of the total investment population. In the USA, for example, institutional investors,
including pension funds, hold around 50% of all listed stock. 5 In India also Institutional
shareholders have acquired large stakes in the equity share capital of listed companies.
The institutional investors are now in the process of becoming majority shareholders in many listed
companies and own shares largely on behalf of the retail investors. They thus have a special
responsibility given the weightage of their votes and have a bigger role to play in corporate
governance as retail investors look upon them for positive use of their voting rights.6

5 http://www.commerce.gov.bh/downloads/c_governance/Book1Inside
6 Report of the Kumar Committee on Corporate Governance Relating to Shareholder.
http://in.geocities.com/kstability/inbank/corpgovern/shareholders

In the recent years the focus of the institutional investors has been changing from that of trading
to long term ownership of shares, which has an implication on participation in the management of
the companies in which they invest. Now the institutional shareholders are focusing more on the
long term relationship with the companies by retaining the ownership of the shares. The concept
shift of institutional investors towards long term ownership of the shares is having a major
influence on corporate governance in the sense that institutional investors require a greater level of
accountability and transparency, and have the back-office resources to ensure that they can play an
effective role as concerned and active shareholders.
In this regard it is very pertinent to the OECD (Organisation for economic cooperation and
development)7 principles of Corporate Governance. An important extract from OECD Principles of
Corporate Governance:
Controlling shareholders, which may be individuals, family holdings, bloc alliances, or other
corporations acting through a holding company or cross shareholdings, can significantly influence
corporate behavior. As owners of equity, institutional investors are increasingly demanding a voice
in corporate governance
This extract from the OECD principle reflect the growing interest of institutional shareholder to
participate in the management of the company by having longer term ownership of the shares in the
company.
The Kumar Mangalam Committee Report on Corporate Governance has also made certain
recommendations with regard to the institutional shareholder as to:

Take active interest in the composition of the Board of Director

Be vigilant

Regular and systematic contact at senior level for exchange of views on management,
strategy, performance and the quality of management.

7 Organization of Economic Corporation & Development.

Ensure that voting intentions are translated into practice Evaluate the corporate governance
performance of the company.

The recommendations, principles & practices elsewhere in the world have indicated that
institutional shareholders because of their collective stake can sufficiently influence the policies of
the company so as to ensure that the company they have invested in compliance with the corporate
governance code in order to maximize shareholder value. At the same time the active participation
of institutional investors can bring about a greater scrutiny, accountability and transparency of
companies. This makes it doubly important that institutional shareholders take their role as
investors seriously and act accordingly for the enhancement of good corporate governance.
CHAPTER-IV
INTERNATIONAL SCENARIO
The development of the OECD Principles of Corporate Governance was sparked by the Asian
financial crisis of 1997-1998.8 At the height of the 1997-98 financial crises, the OECD was asked
by G7-the Group of seven (Canada, France, Germany, Great Britain, Italy, Japan and US) to
develop international standards on corporate governance that could be useful to OECD Members
and non-Member countries alike. In May 1999, the OECD Principles were formally endorsed by
OECD Member countries. While the OECD Principles were developed with publicly listed
companies in mind, many of these Principles are also applicable to privately-held enterprises. The
OECD Principles cover five main areas: 1) the rights of shareholders; 2) the equitable treatment of
shareholders; 3) the role of stakeholders; 4) disclosure and transparency; and 5) the responsibilities
of the board.
In the OCED principles of corporate governance there is a clear mention that the key shareholder
rights are the participation in any decision concerning fundamental corporate changes and the right
to be informed of options to address these changes. These fundamental changes can be amendments
in the corporate chapter; authorization of additional shares; and extraordinary transactions that

8 Kaizuka Masaaki, Fourth Round Table on Capital Market Reform in Asia09-10 April 2002.
http://www.oecd.org/dataoecd/34/3/2077494

result in a fundamental change of the asset structure. This principle is totally in favor of the
shareholder right to take part in the management of the company.
The Principles emphasizes that all shareholders, including minority and foreign shareholders,
should be treated equitably by controlling shareholders, boards and management. Insider trading
and abusive self-dealing should be prohibited. The Principles call for transparency with respect to
distribution of voting rights and the ways voting rights are exercised. They also call for disclosure
of any material interests that managers and directors have in transactions or matters affecting the
corporation.9 At the international level, the OECD Principles of Corporate Governance have
emerged as the international benchmarks on good corporate governance.
The ICGN10 principles also recognizes the object stated in the OECD principles. The ICGN
principle states that there should not be any major strategic changes in the core business should not
be without the prior consent of the shareholders. The UK Combined Code (January 1998) states
that the process and procedure for conducting annual general meeting should allow the shareholder
to have fair and equal participation. The German Code (January 2000) states that the confidence of
the shareholder and other investors should be promoted in the international market.
The European Union and its member states are totally in favor of the shareholder participation in
the management. It states that the shareholder to be treated equitably and there should be no barrier
with regard to the shareholder attending the general meeting, whether in person or by proxy.
Therefore it is clear that mostly all the countries around the world are now recognizing the right of
the shareholder. Every country all over is now taking steps to make fair and equitable participation
of the shareholders.
CHAPTER V
CONCLUSION

9Nestor Stilpon, OECD Principles of Corporate Governance on Shareholder Rights

http://www.imf.org/external/pubs/ft/seminar/2000/invest/pdf/nestor

10 International Corporate Governance Network.

The shareholders are really the ultimate owner of the company. They bear all the risk of the
business and stand to gain the profits arising out of it. They have heavy risk on their shoulders
because if the business will have profit then they will also earn dividends but if the business will
incur losses than their money which is involved is also gone.
Shareholder has various rights in the company. One of the important right among them is the right
to participate in the management of the company. Every shareholder has a right to take part in the
management of the company as by participating and voting in the annual general meeting either
personally or through proxies. Taking all the information about the management of the is also an
important right as possessed by the shareholder.
In the present scenario corporate governance is holding very important place in the corporate
world. Every company in the world is trying to incorporate the basic principles of corporate
governance. One of the most important principles of corporate governance which has been
acknowledged all over the world is the shareholder right to participate in the management of the
company and to receive equal treatment.
Therefore it is very clear that for the better performance of the company there should be proper
transparency and shareholders should be well informed about the management of the company and
there should be proper participation on the part of the shareholders.
There are some suggestions with regard to the shareholder participation and the equitable treatment
of the shareholder in the company can be increased.
Separating ownership and management will help to reduce the conflicts between majority
Shareholders and minority shareholders. Institutional shareholder can be encouraged by the
Government policies as it will improve both the overall quality of investors and companies in
which to invest. There are many ways for governments, institutions, companies and the press and
other media to communicate with the investment community to increase shareholder participation
and confidence. For publicly listed companies, the primary goal should be to share accurate and
transparent company information with the investment community and to ensure good performance
for all shareholders in the company. There is a need to make laws in order to improve participation
at shareholder meetings and through the proxy voting process and are looking at allowing greater

reliance on new technology for better corporate governance. Electronic communication techniques
in the transmission of voting instructions should be encouraged.

BIBLIOGRAPHY
Articles Referred:

Kaizuka Masaaki, Corporate Governance in Asia OECD Principals and Beyond, Fourth
Round Table on Capital Market Reform in Asia09-10 April 2002.

Baums Theodor, Shareholder Representation and Proxy Voting in the European Union,
presented at the Conference on Comparative Corporate Governance Hamburg, May, 1997.

Muller Kaspar, Corporate Governance and Globalisation The Role and Responsibilities of
Investors.

Duhamel Vincent, Shareholder Rights and the EquitableTreatment of Shareholders, The

Fourth Asian Roundtable on Corporate Governance, Mumbai, India, 11-12 November 2002.

Green Margarita, Protection of shareholder rights.

Nestor Stilpon, OECD Principles of Corporate Governance on Shareholder Rights and

Equitable Treatment: Their Relevance to the Russian Federation.

Report of the Kumar Mangalam Committee on Corporate Governance Recommendations

Relating to Shareholder.

Books Referred:

Datey V.S., Student Guide to Corporate Law, 2002.

Websites:

http://www.iccwbo.org/CorpGov/shareholders.asp

http://www.oecd.org/dataoecd/54/18/1920683.pdf.

http://www.ellipson.com/files/debate/debate_summer_02e.pdf

http://www.ffhsj.com/cmemos/030917_workers_committee.pdf

http://in.geocities.com/kstability/inbank/corpgovern/shareholders.html

http://www.corp-gov.org/bd/db.php3?db_id=423&base_id=3

http://www.imf.org/external/pubs/ft/seminar/2000/invest/pdf/nestor.pdf.

http://www.commerce.gov.bh/downloads/c_governance/Book1Inside.pdf.