Company Law Project

#aret econo#ies as a set o! structural arran+e#ents ith a ai# o! de"elopin+ a relationship &eteen the #ana+e#ent o! co#panies and the interests o! its shareholders. Su&se*uentl'1 corporate +o"ernance concerns e/tended to the interest o! other staeholders and e"entuall' to societ' at lar+e. There!ore a sound corporate +o"ernance s'ste# re*uires that shareholders can acti"el' participate in1 and e/ert in!luence on1 corporate strate+ic decision9#ain+. The to i#portant principle o! corporate +o"ernance can &e elucidate as2 &he first principle# *&he corporate !overnance practices should !ive the shareholders a real opportunity to exercise their ri!hts connected +ith their participation in the co$pany' &he second principle# *&he corporate !overnance practices should ensure e(ual treat$ent of shareholders +ho o+n the sa$e nu$%er of shares of the sa$e type -cate!ory.'

The shareholders are the oner o! the co#pan' and &' "irtue o! this the' ha"e "arious ri+hts and o&li+ation in a co#pan'. So#e o! the &asic ri+hts in the co#pan' are2 ensurin+ ade*uate #ethods o! onership re+istration1 con"e'in+ or trans!errin+ shares1 participatin+ in the co#pan'@s pro!its1 o&tainin+ in!or#ation on a ti#el' &asis1 participatin+ and "otin+ in +eneral shareholder #eetin+s. Alon+ ith these there are "arious other ri+hts o! the shareholder and one o! the #ost i#portant a#on+ all these is the ri+ht to tae part in the #ana+e#ent o! the co#pan'. The #ost i#portant channel !or shareholders to in!luence ho the co#pan' has to run is to attend and "ote at the +eneral asse#&l' #eetin+s.

SHAREHOLDERS R IGHT TO PARTICIPATE

IN THE MANAGEMENT OF THE COMPANY

Page 10

CHAPTER*II SHAREHOLDER RIGHTS

PARTICIPATE IN GENERAL MEETINGS'

The shareholders are in"ol"ed in tain+ #aor decisions a&out the co#pan'. These decisions are &asicall' taen in the +eneral #eetin+s. These decisions are in !or# o! 3resolution4. D"er' 'ear there is one #eetin+ o! the #e#&ers has &een or+ani-ed and this #eetin+ is called as the Annual %eneral Meetin+.: In addition to this i! there is an' e#er+enc' or need to transact ur+ent &usiness than an D/tra Ordinar' %eneral Meetin+ is called. The #ain purpose o! the annual +eneral #eetin+ is that the ulti#ate control o! the co#pan' is in hands o! shareholders. A%M +i"es the# an opportunit' to no a&out the orin+ o! the orin+ o! the co#pan' and to #ae su++estion !or the i#pro"e#ent and pro+ress. The' can e"en chan+e the #ana+e#ent i! the' are not satis!ied.

VOTING RIGHT'

>otin+ at the +eneral #eetin+s o! co#panies is the #ost "alua&le and !unda#ental #echanis# &' hich the shareholders accept or reect the proposals o! the &oard o! directors as re+ards the structure1 the strate+'1 the onership and the #ana+e#ent o! the corporation. There!ore shareholder "otin+ is an inte+ral part o! the +o"ernance structure o! pu&licl' held corporations.

Re*uirin+ shareholder consent !or an' !unda#ental chan+e in corporate polic' is a sa!e+uard !or the residual ris9&earers o! a corporation a+ainst e/ post e/propriation &' the #ana+e#ent. The ri+ht to "ote assures the shareholders that ithout their appro"al the &asic ter#s o! their in"est#ent cannot &e altered. Also1 "estin+ "otin+ ri+hts in shareholders is the onl' !easi&le #ethod to i#ple#ent #aor i#pro"e#ents o! corporate polic' that a!!ect the ter#s o! their in"est#ent.

In other ords e can sa' that the "otin+ is the onl' #echanis# a"aila&le ith the shareholders !or e/ercisin+ an e/ternal chec on the &oard and the #ana+e#ent. It is :

Section 166(1). Companies Act.



Page 11

i#portant to ensure that those "otes are cast in a #anner that is #ost consistent ith the lon+9ter# &est econo#ic interests o! the co#pan'@s shareholders. Ri+ht to "ote is one o! the #ost e!!ecti"e tools !or pro#otin+ +ood corporate +o"ernance. To #aintain this e!!ecti"e tool all shareholders should recei"e e*uita&le treat#ent1 includin+ #inorit' and !orei+n shareholders and all shareholders should &e a&le to o&tain e!!ecti"e redress !or "iolation o! their ri+hts. More speci!icall'2  shares o! the sa#e class should ha"e the sa#e "ote1  in!or#ation on the "otin+ ri+ht should &e pro"ided &e!ore the purchase o! the

share1  an' chan+es in "otin+ ri+hts should &e su&ect to shareholder "ote1  custodians or no#inees should cast "otes as a+reed upon ith the &ene!icial

oner o! the shares1  co#pan' procedures should not #ae it undul' di!!icult or e/pensi"e to cast

"otes1  insider tradin+ and a&usi"e sel! dealin+ should &e prohi&ited1 and  #e#&ers o! the &oard and #ana+#ent should &e re*uired to disclose an' #aterial

interest in transactions or #atters a!!ectin+ the corporation

nder the Indian Co#panies Act1 all holders o! e*uit' shares as on the date o! the Annual %eneral Meetin+ are entitled to "ote. A #e#&er@s "otin+ ri+ht are in proportion to his share o! the paid up capital in the co#pan'. In case o! share issued ith disproportionate "otin+ ri+ht as per#issi&le under Section F1 the "otin+ ri+ht ill &e as per the ter#s o! the issue o! the share.

Posta2 &a22ot'



Section 87, Companies Act.



Page 12

There is also a concept o! postal &allot under the co#panies Act. The concept has &een stated in the section :8A hich has &een &rou+ht in to !orce on :;th une 77:. The #ain idea &ehind postal &allot is to con!ir# the 3corporate de#ocrac'4.  This is lie there are lahs o! shareholder spread all o"er the countr' and it is not possi&le !or all o! the# to &e present in the #eetin+. There!ore to re#ed' this situation this concept has &een &rou+ht in this the shareholder can "ote &' post ithout attendin+ the +eneral #eetin+.

Pro7y'

I! a shareholder o! the co#pan' is una&le to attend the #eetin+ than he can appoint a pro/' to attend the #eetin+.E Such another person #a' or #a' not &e the #e#&er o! the co#pan'. A pro/' is &asicall' one actin+ !or another. $ro/' ho has &een appointed is entitled to attend the #eetin+ and can "ote on &ehal! o! the principal #e#&er. $ro/' is accepta&le in al#ost all part o! the orld !or e/a#ple in Austria1 Beliu#1 6rance1 %er#an and nited 5in+do# etc.

Alon+ ith this there is a ne concept e#er+in+ and that is o! Dlectronic sendin+ o! "ote and so#e countries ha"e alread' adopted this concept. 6or e/a#ple2 Bel+ian la lea"es it to the co#panies and their &'9las to decide hether shareholders can "ote &' #ail or in person. In 6rance >otin+ &' #ail is per#itted &' the la. Shareholders #a' also "ote &' !a/1 as lon+ as the' also #ail the o!!icial &allot to the co#pan'.

Basicall' all these e#er+in+ concept o! "otin+ is to +i"e e!!ect to the "otin+ ri+ht o! the shareholder. Because the onl' #echanis# a"aila&le ith the shareholders !or e/ercisin+ an e/ternal chec on the &oard and the #ana+e#ent is "otin+. There!ore it is i#portant to ensure that all the "otes ha"e &een casted properl'.

Datey V.S., “Student Guide to Corporate La!, 1"8(#a$mann A%%ied Ser&ice, ' t ed., **). E Section 176, +ndian Companies Act. 



Page 13

APPOINTMENT OF DIRECTOR

The shareholders1 ho are the ulti#ate oner o! the co#pan' are authori-ed onl' to tae decision in respect o! #aor polic' #atter onl' to the e/tend speci!ied in the Co#panies Act. As e no that there is a di"orce &eteen the #ana+e#ent and the onership and there!ore the shareholder cannot inter!ere in the da' to da' #ana+e#ent o! the co#pan'. 6or the sa#e reason the' appoint director to loo o"er the co#pan'. O"erall super"ision and control o! a!!airs o! the co#pan' is entrusted to director as appointed &' the #e#&er. It is the dut' o! the directors to pool their noled+e and e/periences !or the &etter#ent o! the co#pan'. Shareholder has ri+ht to appoint the directors and to re#o"e the# as ell



Page 14

CHAPTER*III INSTITUTIONAL SHAREHOLDERS

In the present ti#e #an' countries o! the orld ha"e institutional in"estors ho are #ain+ up a si+ni!icant percenta+e o! the total in"est#ent population. In the SA1 !or e/a#ple1 institutional in"estors1 includin+ pension !unds1 hold around ;7G o! all listed stoc.; In India also Institutional shareholders ha"e ac*uired lar+e staes in the e*uit' share capital o! listed co#panies. The institutional in"estors are no in the process o! &eco#in+ #aorit' shareholders in #an' listed co#panies and on shares lar+el' on &ehal! o! the retail in"estors. The' thus ha"e a special responsi&ilit' +i"en the ei+hta+e o! their "otes and ha"e a &i++er role to pla' in corporate +o"ernance as retail in"estors loo upon the# !or positi"e use o! their "otin+ ri+hts. In the recent 'ears the !ocus o! the institutional in"estors has &een chan+in+ !ro# that o! 3tradin+4 to lon+er9ter# onership o! shares1 hich has an i#plication on part$.$pat$on $n t/e mana,ement o- t/e .ompan$es in hich the' in"est. ?o the institutional

shareholders are !ocusin+ #ore on the lon+9ter# relationship ith the co#panies &' retainin+ the onership o! the shares.The paradi+# shi!t o! institutional in"estors toards lon+ ter# onership o! the shares is ha"in+ a #aor in!luence on corporate +o"ernance in the sense that institutional in"estors re*uire a +reater le"el o! accounta&ilit' and transparenc'1 and ha"e the &ac9o!!ice resources to ensure that the' can pla' an e!!ecti"e role as concerned and acti"e shareholders.<

;

ttp--.commerce.o&./-don%oads-c0o&ernance-oo21+nside.pd3. 4as &isited on '-*"-**5. 

eport o3 te umar 9ana%am Committee on Corporate Go&ernance : ecommendations e%atin to “Sareo%der! Cf. ttp--in.eocities.com-2sta/i%ity-in/an2-corpo&ern-sareo%ders.tm% 4as &isited on 6-*"-**5. <

Supra 3.n 1



Page 15

In this re+ard it is "er' pertinent to the ODC= F principles o! Corporate %o"ernance. An i#portant e/tract !ro# ODC= $rinciples o! Corporate %o"ernance2 *Controllin! shareholders, +hich $ay %e individuals, fa$ily holdin!s, %loc alliances, or other corporations actin! throu!h a holdin! co$pany or cross shareholdin!s, can si!nificantly influence corporate %ehavior' As o+ners of e(uity, institutional investors are increasin!ly de$andin! a voice in corporate !overnance

This e/tract !ro# the ODC= principle re!lect the +roin+ interest o! institutional shareholder to participate in the #ana+e#ent o! the co#pan' &' ha"in+ lon+er ter# onership o! the shares in the co#pan'.

The 5u#ar Man+ala# Co##ittee Report on Corporate %o"ernance has also #ade certain reco##endations ith re+ard to the institutional shareholder as to82  Tae acti"e interest in the co#position o! the Board o! =irector  Be "i+ilant

 Re+ular and s'ste#atic contact at senior le"el !or e/chan+e o! "ies on

#ana+e#ent1 strate+'1 per!or#ance and the *ua lit' o! #ana+e#ent.  Dnsure that "otin+ intentions are translated into practice D"aluate the corporate

+o"ernance per!or#ance o! the co#pan'.

The a&o"e reco##endations1 principles  practices elsehere in the orld ha"e indicated that institutional shareholders &ecause o! their collecti"e stae can su!!icientl' in!luence the policies o! the co#pan' so as to ensure that the co#pan' the' ha"e in"ested in co#pliance ith the corporate +o"ernance code in order to #a/i#i-e shareholder "alue. At the sa#e ti#e the acti"e participation o! institutional in"estors can &rin+ a&out F 8

;rani De&e%opment. Supra 3.n 



Page 16

a +reater scrutin'1 accounta&ilit' and transparenc' o! co#panies. This #aes it dou&l' i#portant that institutional shareholders tae their role as in"estors seriousl' and act accordin+l' !or the enhance#ent o! +ood corporate +o"ernance.



Page 17

CHAPTER*IV INTERNATIONAL SCENARIO

The de"elop#ent o! the ODC= $rinciples o! Corporate %o"ernance as spared &' the Asian !inancial crisis o! :88<9:88F.:7 At the hei+ht o! the :88<98F !inancial crises1 the ODC= as ased &' the %< to de"elop international standards on corporate +o"ernance that could &e use!ul to ODC= Me#&ers and non9Me#&er countries alie. In Ma' :8881 the ODC= $rinciples ere !or#all' endorsed &' ODC= Me#&er countries. While the ODC= $rinciples ere de"eloped ith pu&licl' listed co#panies in #ind1 #an' o! these $rinciples are also applica&le to pri"atel'9held enterprises. The ODC= $rinciples co"er !i"e #ain areas2 :) the ri+hts o! shareholders ) the e*uita&le treat#ent o! shareholders ) the role o! staeholders E) disclosure and transparenc' and ;) the responsi&ilities o! the &oard.

In the OCD= principles o! corporate +o"ernance there is a clear #ention that the e' shareholder ri+hts are the participation in an' decision concernin+ !unda#ental corporate chan+es and the ri+ht to &e in!or#ed o! options to address these chan+es. These !unda#ental chan+es can &e a#end#ents in the corporate chapter authori-ation o! additional shares and e/traordinar' transactions that result in a !unda#ental chan+e o! the asset structure. This principle is totall' in !a"or o! the shareholder ri+ht to tae part in the #ana+e#ent o! the co#pan'.

The second chapter o! the $rinciples e#phasi-es that all shareholders1 includin+ #inorit' and !orei+n shareholders1 should &e treated e*uita&l' &' controllin+ shareholders1 &oards and #ana+e#ent. Insider tradin+ and a&usi"e sel!9dealin+ should &e prohi&ited. The $rinciples call !or transparenc' ith respect to distri&ution o! "otin+ ri+hts and the a's :7

ai


Page 18

"otin+ ri+hts are e/ercised. The' also call !or disclosure o! an' #aterial interests that #ana+ers and directors ha"e in transactions or #atters a!!ectin+ the corporation.:: At the international le"el1 the ODC= $rinciples o! Corporate %o"ernance ha"e e#er+ed as the international &ench#ars on +ood corporate +o"ernance.

The IC%?: principles also reco+ni-es the o&ect stated in the ODC= principles. The IC%? principle states that there should not &e an' #aor strate+ic chan+es in the core &usiness should not &e ithout the prior consent o! the shareholders. The 5 Co#&ined Code (Januar' :88F) states that the process and procedure !or conductin+ annual +eneral #eetin+ should allo the shareholder to ha"e !air and e*ual participation. The %er#an Code (Januar' 777) states that the con!idence o! the shareholder and other in"estors should &e pro#oted in the international #aret.

The Duropean nion and its #e#&er states are totall' in !a"or o! the shareholder participation in the #ana+e#ent. It sates that the shareholder to &e treated e*uita&l' and there should &e no &arrier ith re+ard to the shareholder attendin+ the +eneral #eetin+1 hether in person or &' pro/'.

There!ore it is clear that #ostl' all the countries around the orld are no reco+ni-in+ the ri+ht o! the shareholder. D"er' countr' all o"er is no tain+ steps to #ae !air and e*uita&le participation o! the shareholders.

::

estor Sti%pon, OECD Principles of Corporate Governance on Shareholder Rights and Eqita!le "reat#ent$ "heir Relevance to the Rssian %ederation, C3. ttp--.im3.or-e$terna%-pu/s-3t-seminar-***-in&est-pd3-nestor.pd3. 4 &isited on 5*-*"-**5. :

+nternationa% Corporate Go&ernance etor2.



Page 19

CHAPTER*V CONCLUSION AND SUGGESTIONS

The shareholders are reall' the ulti#ate oner o! the co#pan'. The' &ear all the ris o! the &usiness and stand to +ain the pro!its arisin+ out o! it. The' ha"e hea"' ris on their shoulders &ecause i! the &usiness ill ha"e pro!it then the' ill also earn di"idends &ut i! the &usiness ill incur losses than their #one' hich is in"ol"ed is also +one.

Shareholder has "arious ri+hts in the co#pan'. One o! the i#portant ri+ht a#on+ the# is the ri+ht to participate in the #ana+e#ent o! the co#pan'. D"er' shareholder has a ri+ht to tae part in the #ana+e#ent o! the co#pan' as &' participatin+ and "otin+ in the annual +eneral #eetin+ either personall' or throu+h pro/ies. Tain+ all the in!or#ation a&out the #ana+e#ent o! the is also an i#portant ri+ht as possessed &' the shareholder.

In the present scenario corporate +o"ernance is holdin+ "er' i#portant place in the corporate orld. D"er' co#pan' in the orld is tr'in+ to incorporate the &asic principles o! corporate +o"ernance. One o! the #ost i#portant principles o! corporate +o"ernance hich has &een acnoled+ed all o"er the orld is the shareholder ri+ht to participate in the #ana+e#ent o! the co#pan' and to recei"e e*ual treat#ent.

There!ore it is "er' clear that !or the &etter per!or#ance o! the co#pan' there should &e proper transparenc' and shareholders should &e ell in!or#ed a&out the #ana+e#ent o! the co#pan' and there should &e proper participation on the part o! the shareholders.

There are so#e su++estions ith re+ard to the shareholder participation and the e*uita&le treat#ent o! the shareholder in the co#pan' can &e increased.

 Separatin+ onership and #ana+e#ent ill help to reduce the con!licts &eteen

#aorit'  Shareholders and #inorit' shareholders.



Page 20

 Institutional shareholder can &e encoura+ed &' the %o"ern#ent policies as it ill

i#pro"e &oth the o"erall *ualit' o! in"estors and co#panies in hich to in"est.  There are #an' a's !or +o"ern#ents1 institutions1 co#panies and the press and

other #edia to co##unicate ith the in"est#ent co##unit' to increase shareholder participation and con!idence.  6or pu&licl' listed co#panies1 the pri#ar' +oal should &e to share accurate and

transparent co#pan' in!or#ation ith the in"est#ent co##unit' and to ensure +ood per!or#ance !or all shareholders in the co#pan'.  There is a need to #ae las in order to i#pro"e participation at shareholder

#eetin+s and throu+h the pro/' "otin+ process and are looin+ at alloin+ +reater reliance on ne technolo+' !or &etter corporate +o"ernance.  Dlectronic co##unication techni*ues in the trans#ission o! "otin+ instructions

should &e encoura+ed.



Page 21

&I&LIOGRAPHY'

Art$.2es Re-erre%'

 5ai-ua Masaai1 Corporate Governance in Asia OECD Principals and Beyond,

6ourth Round Ta&le on Capital Maret Re!or# in Asia789:7 April 77.  Bau#s Theodor1 Shareholder Representation and Proxy otin! in the European

"nion# A Co$parative Study, $aper1 presented at the Con!erence on Co#parati"e Corporate %o"ernance Ha#&ur+1 Ma' :;9:<1 :88<.  Muller 5aspar1 Corporate Governance and

Glo%alisation &he Role and

Responsi%ilities of Investors'  =uha#el

>incent1

Shareholder

Ri!hts

and

the

E(uita%le&reat$ent

of

Shareholders, The 6ourth Asian Roundta&le on Corporate %o"ernance1 Mu#&ai1 India1 ::9: ?o"e#&er 77.  %reen Mar+arita1 Protection of shareholder ri!hts'  ?estor Stilpon1 OECD Principles of Corporate Governance on Shareholder

Ri!hts and E(uita%le &reat$ent# &heir Relevance to the Russian )ederation'

&oo3s Re-erre%'

•

=ate' >.S.1 3Student %uide to Corporate La41 (Ta/#ann Allied Ser"ice1 ;th ed.1 77).

1e# S$tes'



http2,,.icc&o.or+,Corp%o",shareholders.asp



http2,,.oecd.or+,dataoecd,;E,:F,:87F.pd!.



Page 22



http2,,.ellipson.co#,!iles,de&ate,de&ateKsu##erK7e.pd!



http2,,.!!hs.co#,c#e#os,778:


http2,,in.+eocities.co#,sta&ilit',in&an,corp+o"ern,shareholders.ht#l



http2,,.oecd.or+,dataoecd,E,,7<


http2,,.oecd.or+,dataoecd,E8,:,EFEF;E.pd!.



http2,,.corp9+o".or+,&d,d&.php0d&KidE&aseKid



http2,,.i#!.or+,e/ternal,pu&s,!t,se#inar,777,in"est,pd!,nestor.pd!.



http2,,.co##erce.+o".&h,donloads,cK+o"ernance,Boo:Inside.pd!.

Ot/er So"r.e'

•

Report o! the 5u#ar Man+ala# Co##ittee on Corporate %o"ernance Reco##endations Relatin+ to 3Shareholder4.



Page 23

Company Law Project

Recommend Documents