Your Rights As A Shareholder

The last decade witnessed an increase in awareness about the happenings in the stock market. Until the recent economic recession that adversely affected the stock market, there was a boom in the stock market as more people invested in stock. There were diverse opportunities to invest in many sectors of the economy. Companies, almost on weekly basis, offered different types of shares to the number of stockbrokers who educated and impressed upon members of the public, the need to so invest.

As the awareness spread, more people invested. Some invested because they had heard stories of people reaping huge dividends from stocks while some others just put in their money because everyone was into it. There were people who had first hand success stories who believed it was a long-lasting and safe way to invest therefore they went ahead to invest more.

Gradually, this form of investment which was viewed as the exclusive preserve of the high and mighty caught the interest of people of different strata. In all these, the fact still remains that only people who have made huge investments are interested in their rights in the company while the generality of the people are only interested in cashing their dividend warrants.

Section 114 of the companies and Allied Matters Act, 1990 provides that subject to the provisions of the Act, the rights and liabilities attaching to the shares of a company shall be dependent on the terms of issues and the company’s articles, and notwithstanding anything to the contrary in the terms or the articles, include the right to attend any general meeting of the company; and vote at such meeting. Other rights attached to shares include the right to elect members of the board. Also, a shareholder has the right to initiate proceedings in a court of law and justice for the protection of his personal rights.

As noted above, many of the rights afforded to shareholders are contained in each corporation’s articles of incorporation or bylaws. It is also noteworthy that shareholders generally do not have the right to vote on management issues that occur in the ordinary course of the corporation’s business. Many decisions of the corporation are made by the board of directors or officers  of the corporation, and in most cases, shareholders may not compel the board or officers to take or refrain from taking any action.

Shareholders can protect their ownership rights in their shares by bringing a direct action against a corporation. Such cases may involve contract rights related to the shares; right granted to the shareholder in a statute; rights related to the recovery of dividends; and records of the corporation.

Some cases are not appropriate for direct actions by a shareholder against a corporation. For example, a shareholder may not bring a direct action against a corporation by alleging that an offer breached a fiduciary duty owed to the corporation. Such cases involve all shareholders and are more appropriate as derivative actions. But a shareholder may bring a direct action if he or she has been prevented from voting.

Shareholders may bring suit as representatives of the corporation in a derivative action. Such an action is designed to prevent wrongdoing by the officers and directors of the Corporation or seek a remedy for such wrong doing. These suits are generally brought itself (through its officer and directors)  refuses to bring suit itself.

A party bringing a derivative suit acts as a representative of an appropriate class of shareholders and in the action the shareholders enforce claims that would be appropriate between the corporation and the officers and directors of the corporation. For example, if the officers of the corporation have breached a fiduciary duty owed to the corporation, shareholders may bring a derivative action to protect the interests of the corporation on behalf of the corporation.

While these actions in many cases protect the rights of the corporation and shareholders of the corporation, these actions are often controversial. Shareholders should study the procedural and substantive provisions of statute to determine whether the action is appropriate and determine which formalities should be followed with respect to these actions. It is very important as a shareholder to keep abreast with the terms of issue and the company’s article to fully understand your rights and liabilities as a shareholder.

Mercy Oke-Chinda