Shareholder’s democracy: The era of shareholder’s supremacy

MEANING:

Shareholder’s democracy can be demonstrated as the rule of shareholders, by shareholders’, and for a shareholder in the corporate enterprise, to which the shareholders belong. Shareholders can directly or indirectly manage the affairs of the company by electing a board of directors who are responsible for managing the day-to-day affairs of the company.

WHY IT IS IMPORTANT:

1. This Concept provides required authority to the shareholders for the protection of their rights.
2. Avoid concentration of powers.
3. Provide authority to the shareholdersto enable them to exercise control over the affairs of the company.
4. Clear demarcation between the powers of the board of directors and that of shareholders.
5. Board of directors can’t encroach upon the powers of shareholders and vice versa.

 

SOME POWERS OF SHAREHOLDERS FOR THE PROTECTION OF THEIR RIGHTS AND INTEREST IN THE CORPORATE ENTERPRISE

1. Alteration of MOA and AOA.
2. Further issue of share capital.
3. To Reduce the share capital of the company.
4. To shift the registered office of the company outside the state.
5. To appoint auditors.
6. To approach Central Government for the investigation into the affairs of the company.
7. To allow Related Party Transactions.
8. To allow a director, partner, or his relative to hold office or place of profit.
9. To make loans, extend guarantees or provide security to other companies or make investments beyond the limit specified.
10. To borrow money and to change out the assets of the company to secure the borrowed money.
11. To appoint directors.
12. To increase or reduce the number of directors within the limits laid down in AOA.
13. To cancel, redeem debentures, etc.
14. Contribute funds not related to the business of the company.
15. Payment of commission of more than 1% of the net profits of the company to a managing or a whole-time director or a manager.

PRACTICAL SCENARIO:

• Shareholders are not aware enough as of now and generally busy with their schedules and do not have time to concern themselves with the affairs of the company in which they have invested their money.
• Despite the powerful weapons handed over to the shareholders by the Companies Act, the shareholders have not been able to use them efficiently and ultimately.
• Although the concept of shareholders’ democracy has been enshrined in the Companies Act,because of the abovementioned deficiencies and the flaws in the general body shareholders, it is not reflected in the constitution of the boards of companies in India.
• For achieving the shareholders’ democracy, the shareholders have to unite and organize themselves so that their voice is heard and they can assert themselves and safeguard the interest of their members.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates

 

Tags: secretarial, Secretarial Audit, Secretarial Support