Navigating Your Responsibilities and Entitlements as a Shareholder in a Firm

Embarking on the journey of purchasing shares and becoming an investor in a company is a thrilling endeavor. Whether you’re acquiring shares to initiate an investment portfolio, expand your financial assets, or explore additional income streams, grasping your role as a shareholder is paramount. Drawing from our extensive experience in conflict resolution, the legal professionals at Aylward Game Solicitors have witnessed the complications and exasperation that can arise when shareholders misconstrue their rights and responsibilities.

Understanding the Shareholder Role

Within the landscape of a company, a shareholder assumes the role of a partial owner. Every company is required to have at least one shareholder.

You attain the status of a shareholder under these circumstances:

• The company issues shares to you.
• An existing shareholder within the company transfers their shares to you (usually in exchange for a sum), and the company officially records the transfer.

Rights Accorded to Shareholders in a Company

The scope of your entitlements as a shareholder hinges on the type of company in which you hold shares (public or private) and the class of shares you possess (common or preferred shares). Additionally, shareholder rights are influenced by the company’s constitution (if applicable), the ‘replaceable rules’ outlined in the Corporations Act 2001 (Cth), and any executed shareholder agreements.

In general, shareholders enjoy the following privileges:

• The right to attend shareholder meetings and cast votes on specific matters (e.g., appointment and removal of directors).
• The right to sell your shares, although certain restrictions might apply.
• The right to participate in corporate initiatives offered by the company, such as rights issues, share offerings, or share buybacks.

Duties and Responsibilities of Shareholders towards a Company

Given that a company is a distinct legal entity, shareholders’ obligations are primarily limited to any unpaid sums tied to the shares held by them. Additional obligations, if present, will be explicitly outlined in the company’s constitution and/or a shareholder agreement.

Key Distinctions between Shareholders and Directors

Discerning disparities between shareholders and directors is pivotal:

• Shareholders act as partial owners of a company, while directors are accountable for managing the company’s business operations.
• Shareholders’ responsibilities generally revolve around any outstanding sums linked to the shares they possess. Conversely, directors are subject to an array of responsibilities dictated by federal, state, and territorial laws.

Navigating Potential Challenges

While the acquisition of shares is a customary practice, it is essential to remain vigilant about the prevalent challenges we’ve observed:

Limited influence over company management

It’s crucial to recognise that as a shareholder, your ability to influence the company’s management and strategic trajectory is confined to voting on pivotal matters during shareholder meetings. In show-of-hand voting, each shareholder usually possesses one vote. Alternatively, in a poll-based voting system, shareholders often have one vote for each share they hold.

Hurdles in accessing company information

Shareholders have restricted access to company and financial information. In the context of small proprietary companies and small companies limited by guarantee, shareholders typically need to command at least 5 percent of the votes to prompt these companies to generate and deliver financial reports and directors’ reports for a fiscal year.

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Challenges in divesting shares

Selling shares in a public company usually poses minimal challenges on the Australian Securities Exchange (ASX). However, in the case of shares held in a private company, the process can be intricate. The company’s constitution might impose constraints on the how and when of share sales, and finding potential investors for a niche, in a private company could prove challenging.

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