Shareholders
All companies are required to have at least one shareholder. The shareholder can be local
or foreign person who is an individual or a corporation. Shareholders are essentially the
owners of the Company. A shareholder can either be or not be appointed as a Director of the
Company.
For shareholders who are directors of the company, you will be essentially the owner and management figure of the company. Your dual role means that you will need to fulfill all aspects of the Act that is required of in your capacity as director as well as shareholder of the Company.
For shareholders who are not directors, you will simply be an owner of the company who is not involved in the management of the Company. In this scenario, management decisions and statutory requirements that are placed on Directors of a company will be undertaken by a separate individual. Your control over the company operations will simply be via your decision to appoint the right person to lead the Company.
A single shareholder-director company is essentially a sole proprietorship that enjoys the benefits of a private limited company, but yet governed by the legislative requirements of the Companies Act. You will be solely responsible for all company matters as well as the sole beneficiary of all the rewards generated by the Company.
Companies with 2 or more shareholders implies a co-ownership structure. Some ownership structures will consist of equal shareholders, meaning that all participants are equally entitled to the dividends declared and have an equal say on all relevant company matters.
In some arrangements, ownership may not be equal, with one shareholder being the holder of a majority shareholdings. In this arrangement, the major shareholder will have a bigger decision right as well as a larger dividend entitlement over the other shareholders.
Type of Shareholders
There are essentially 2 types of shareholders – Shareholders with voting rights (called “Members”) and Shareholders without voting rights (typically holders of preferential shares)
Members are shareholders who can vote at General Meetings based on the votes carried by their shares. Therefore members can influence the decision making process of the company by way of their votes on specific matters. Example: Members can decide whether a director should stay in the company or be removed, they can also decide on the remuneration of directors as well as approve on several other major company issues as listing in the later part of this article.
Shareholders without voting rights merely hold on to shares of the company for the purpose of gaining returns on their investment. Typically, they are issued preference shares with no voting rights. The preferential terms of the shares vary from company to company, but the most common approach would be to set a preferential, or higher dividend rate, compared to ordinary shareholders, to reward them for the loss of voting power.
How are Shareholders Remunerated?
Shareholders can only be remunerated by way of Dividends. Dividends are typically proposed by the Board of Directors, and subsequently approved by the shareholders themselves in General Meetings of the Company. There are no other available forms of remuneration availed to shareholders.
The Shareholder Decision System
Shareholders make decisions that affects the company by way of the passing of members’ resolutions. Matters which require shareholder decisions are typically set out in the Memorandum and Articles of Association of the Company.
There are 2 types of Members’ Resolutions – Ordinary Resolution and Special Resolution. Ordinary Resolutions require a simple majority of over 50% of votes cast by members entitled to vote. For Special Resolutions, a minimum of 75% majority has to be achieved in order to pass the said Special Resolution. This 75% majority rule can be increased to a greater majority if explicitly provided for in the Articles of your Company.
Examples of Matters passed by way of Ordinary Resolutions include:
- Declaring a dividend
- Consideration of the accounts, balance-sheets, and the report of the directors and auditors
- Election of directors in the place of those retiring
- Appointment and fixing of the remuneration of the auditors
Examples of Matters passed by way of Special Resolutions include:
- Alteration of Object Clauses in Memorandum
- Alteration of Articles
- Change in company name
- Reduction of share capital
- Voluntary winding up
- Removal of liquidator in a voluntary winding up
Increasing Ownership or Exiting a Company
A shareholder can increase ownership of his company by authorizing the Company to increase the number of issued shares (termed as allotment of shares) to himself, subject to approvals of the Directors and/or the other Shareholders. Alternatively, an existing shareholder can buy additional shares for himself by acquiring existing shares held by other shareholders by way of a share transfer.
A shareholder can exit a company by disposing his shares in the company. This can only be achieved by way of a share transfer. It is important to note the conditions of share transfers prior to the actual transfer. How share transfers can be conducted are subjected to the terms and conditions stipulated in the Articles of Association of the Company.
