Company Law Essay Help : The Rights of Shareholders
Shares may be ordinary, preferential or deferred although the latter is of little significance nowadays.
Ordinary shares may be 'voting' or 'non voting' and a company may in fact issue as many different classes of shares as it likes. Preference shares carry a preferential right to a fixed annual dividend. Other rights are set out below.
The right to vote
The holder of an ordinary share or shares may vote at all general meetings of the company. The holder of preference shares may however only vote at a class meeting of preference shareholders - they may not vote at general meetings.
The right to dividends
There is no contractual right with ordinary shares to a dividend. The directors must declare a dividend within the limitations of the dividend rules and the ordinary shareholders may veto their proposal, but may not substitute a declared dividend of their own (See Regulation 102 Table A).
Provided that the dividend rules are satisfied, the preference shareholders are entitled to the percentage dividend that identifies their shares (for example, 5 per cent preference shares). This must be paid out of distributable profits before any sum can be paid to ordinary shareholders. It is possible however that where a business is profitable, the percentage that goes to ordinary shareholders is higher than that which goes to preferential shareholders. There is however a further class of preference share (participating preference shares) and holders of this type are entitled to receive any dividend yield above the fixed percentage to which they are usually entitled.
The dividend for preferential shares is presumed to be cumulative and so, if the dividend is not paid in one year, the unpaid part is caarried forward to the next year until the arrears are paid (unless the memorandum or articles express to the contrary).
Right to return of capital
The ordinary shareholders of the company have a right to have a right to have their capital returned after all the company's creditors have been paid. The preference shareholders are presumed to rank equally with ordinary shareholders for this purpose unless it is expressly identified to the contrary.
The right to distribution of surplus assets
The ordinary shareholder is entitled to a share in any distribution of surplus assets should the company go into solvent liquidation, once their capital has been returned to them. Unless the preference shares are stated as being preferential as to capital, these are also paid off with equal standing to ordinary shareholders. If the preferential shareholders are preferential as to capital, the capital is returned in advance of the ordinary shareholders, but there is no right to share surplus.
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