Title: Shareholders’ rights and remedies The information below provides a guide to the rights and remedies granted to a company’s shareholder and and the relevant requirements in the Companies Act (Cap 50). It should be read with the relevant legislation. Always seek legal advice if you are unsure of any matters. 1. OVERVIEW
1.1
All shareholders and members of a company enjoy certain rights and
remedies granted by the Companies Act (Cap 50), the articles of association or the common law. 1.2
This write-up provides information on:
1) who are the t he shareholders and members of a company; 2) observance of the memorandum and articles & restraint of illegal and ultra vires acts; 3) member’s access to company’s books, finances and records; 4) member’s right to call for meetings and circulate resolutions; 5) member’s right to attend and vote at meetings; 6) member’s right to be treated fairly; and 7) member’s right to apply for derivative actions.
2.
SHAREHOLDERS
AND
MEMBERS
OF
A
COMPANY
2.1
A shareholder is not necessarily a member of a company, and he is therefore
not entitled to exercise any of the rights of membership. Neither is he subject to the liabilities of a member. The two ways in which a person becomes a member of a company are (a) if he is a subscriber to the memorandum of the company, he becomes a member on the incorporation of the company1; and (b) if he agrees to become a member and if his name is on the register of members2.
1 2
Section 19(6) Companies Act Section 19(6) Companies Act
1
2.2
All members of a company have certain rights given to them by the
Companies Act, the articles of the company or the common law. Some of these rights include: (a) ensuring that the memorandum and articles of the company are observed and
restraining illegal and ultra vires acts3; (b) having access to the company's records and finances4; (c) circulating resolutions and calling for general meetings5, (d) attending and voting at general meetings6; (e) to be treated fairly and applying for relief under section 216 of the Companies
Act; and (f) applying for derivative actions under common law and under section 216A
Companies Act to redress wrongs against the company. 3. OBSERVANCE OF THE MEMORANDUM AND ARTICLES OF THE COMPANY AND RESTRAINT OF ILLEGAL AND ULTRA VIRES ACTS
3.1
A member has the right to ensure that the memorandum and articles are
observed by all other members because the memorandum and articles are a contract among the members and between the members and the company 7. This means that a member may successfully apply to the court in certain circumstances to restrain an act that amounts to a breach of the memorandum and articles, or set aside a breach that has already been committed. 3.2
A member has the right to restrain a threatened breach of the Companies Act.
The Registrar or any person whose interests would be affected by the breach may apply to the court for an injunction against the doing of the act.8
3
Section 25, Companies Act Section 203(1), Companies Act 5 Section 177, Companies Act 6 Section 180(1), Companies Act 7 Section 39(1) Companies Act 8 Section 409A(1) Companies Act 4
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3.3
In some specified circumstances, a member also has the right to restrain the
doing of an act that falls outside the company’s capacity as stated in its
memorandum and articles. This is called an
ultra vires act.
Section 25(2) of the
Companies Act provides that the company's incapacity may be used to restrain the company from committing an
ultra vires
act in specified circumstances, but the
power to restrain such an act is lost if it has been wholly executed. 9 4. ACCESS TO COMPANY'S MINUTE BOOKS, RECORDS AND FINANCES
4.1
A member is entitled to inspect the minutes of the company's general
meetings and he is entitled to be furnished with a copy of the minutes at a nominal fee.10 4.2
A member is also entitled to inspect the following registers of a company:
(a) register of members11; (b) register of directors, secretaries, managers and auditors12; (c) register of directors' shareholding13; (d) register of substantial shareholders14; (e) register of debenture holders15; and (f) register of charges16. 4.3
A member is also entitled to be informed of the company's financial position.
He is entitled to be sent free of charge a copy of the last audited profit and loss account and balance sheets (including consolidated accounts where applicable) not less than 14 days before the general meeting at which the accounts are to be
9
Section 25(1) Companies Act Section 189(1) and (2) Companies Act 11 Section 192(2) Companies Act 12 Section 173(5) Companies Act 13 Section 164(8) Companies Act 14 Section 88(2) Companies Act 15 Section 93(3) Companies Act 16 Section 138(3) Companies Act 10
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presented17. He is also entitled to a copy of the auditor's report 18 and the directors' report19
on
the
accounting
records.
5. THE RIGHT TO CALL FOR GENERAL MEETINGS AND CIRCULATE RESOLUTIONS
5.1
Except for a private company that has elected to dispense with the holding of
annual general meetings20, a company must hold its annual general meeting once every calendar year 21. It need not hold an annual general meeting in the year of its incorporation or the following year so long as its first annual general meeting is held within 18 months of its incorporation22. It is the responsibility of the company's directors to convene an annual general meeting. If the directors fail to do so, any member may apply to the court for an order to convene the meeting23. 5.2
The other general meeting of members is called an extraordinary general
meeting. Members holding not less than 10% of the issued shares of the company, or in the case of a company without a share capital, not less than 5% of the members may call for an extraordinary general meeting. 24 Alternatively, members may send a requisition to the directors to convene an extraordinary general meeting. Members holding not less than 10% of the paid-up capital of the company carry voting rights, or in the case of a company without a share capital, members holding 10% of the total voting rights may requisition an extraordinary general meeting 25. If the directors do not convene the meeting within 21 days of receiving the requisition, the requisitioning members may convene the meeting within 3 months from the date that the requisition is deposited26. 5.3
Members may also propose resolutions for general meetings. Members
holding at least 5% of the total voting rights, or at least 100 members holding shares
17
Section 203(1) Companies Act Section 203(2) Companies Act 19 Section 203(1) read with section 201(5) Companies Act 20 Section 175A Companies Act 21 Section 175(1) Companies Act 22 Section 175(1) Companies Act 23 Section 175(4)(b) Companies Act 24 Section 177(1) Companies Act 25 Section 176(1) Companies Act 26 Section 176(3) Companies Act 18
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with an average paid sum of $500 per member per share, may requisition the company to circulate resolutions27. 6.
6.1
THE
RIGHT
TO
ATTEND
AND
VOTE
AT
GENERAL
MEETINGS
Every member is entitled to attend and speak at general meetings,
notwithstanding any provision in the memorandum or articles, except that the articles may provide that a member is not entitled to vote unless he has paid up on his shares, and that members holding certain preference shares are not entitled to vote28. Accordingly, every member who has a right to attend and vote at a general meeting is entitled to be sent notice of the meeting. 6.2
Every member also has the right to vote on any resolution to be passed at a
meeting, notwithstanding anything to the contrary in the memorandum and articles, but this may be suspended by the articles in some circumstances29. A member need not be personally present at a meeting in order to cast his vote, and he may appoint an agent/ proxy to do so on his behalf. He may appoint one to two proxies but he must state the proportion of votes that each proxy carries 30. In the absence of anything to the contrary in the articles, a proxy may only vote on a poll i.e. a written ballot31. 6.3
Voting may be done by a show of hands or on a poll. For a company with a
share capital, each member who is personally present is entitled to one vote on a show of hands, subject to the articles32. For a poll, subject to the articles, generally each share carries one vote33. However, in the case of a public company having a share capital or its subsidiary, each equity share is entitled to one vote only 34. Members of companies without a share capital are entitled to one vote each unless the articles provide otherwise35.
27
Section 183(2) Companies Act Section 180(1) read with section 180(2) Companies Act 29 Section 180(1) read with section 180(2) Companies Act 30 Section 181(1)(b) and (c) Companies Act 31 Section 181(1)(a) Companies Act 32 Section 179(1)(c)(i) Companies Act 33 Section 179(1)(c)(ii) Companies Act 34 Section 64(1) Companies Act 35 Section 179(1)(d) Companies Act 28
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7. THE RIGHT TO BE TREATED FAIRLY
7.1
A member who is a victim of unfair conduct by the majority who control a
company may apply to the court for an order for relief under section 216 of the Companies Act. Section 216 provides the following situations in which a member may apply for relief: if there is “oppression” of the member; where his interests are disregarded; where a resolution or act “unfairly discriminates” against or is “otherwise prejudicial” to him. In order to succeed in obtaining relief, a member must
show that there is a clear departure from the standards of fair dealing that a member is entitled to expect, which may arise out of a single act or as a result of continuing misconduct. 7.2
Generally, however, the court will not interfere with the internal management
of a company which is being managed honestly, unless this mismanagement amounts to a breach of section 216. 7.3
The Court is given wide powers to make such orders as it thinks fit to provide
an appropriate remedy to the aggrieved member under section 216. It may: (a) direct or prohibit any act or cancel or vary any transaction or resolution; (b) regulate the conduct of the affairs of the company in future; (c) authorise civil proceedings to be brought in the name of or on behalf of the company; (d) provide for a purchase of the shares or debentures of the company; (e) provide for a reduction in capital in the case of purchase of shares; or (f) provide that the company be wound up.
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8. THE RIGHT TO APPLY FOR DERIVATIVE ACTIONS TO REDRESS WRONGS AGAINST THE COMPANY
8.1
If the company suffers a wrong, the proper plaintiff to apply to the court for a
remedy against this wrong is the company itself, and not the members of the company. Therefore, a member cannot sue on behalf of the company in such situations, and it is for the board of directors to decide whether to take any action for relief. 8.2
However, if the people who committed the wrong to the company are in the
majority and control it, and do not permit an action for remedy to be brought on behalf of the company, a dissatisfied member may apply for remedy in his own name under common law. This is known as a derivative action under common law, on the basis that fraud has been committed on the minority members of the company. In this context, fraud is not limited to the definition in common law but also includes the definition in equity, which is that there is an illegitimate abuse of power by the majority. An example of abuse of power is appropriation of the company’s money or property. 8.3
Alternatively, a member may apply to the Court for leave to bring an action in
the company’s name. This is known as a statutory derivation or representative action
under section 216A of the Companies Act. This provision defines a “complainant” as: (a) any member of a company; (b) the Minister of Finance in the case of a declared company; and (c) any other person who, in the discretion of the court, is a proper person to make an application. 8.4
In order to allow the statutory derivative action to proceed, the Court must be
satisfied that: (a) the complainant is acting in good faith; and
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(b) it appears prima facie in the interests of the company that the action should be brought.36 8.5
The Court must also be satisfied that the member has given 14 days’ notice to
the directors of his intention to apply to the Court for relief 37.
36
Section 216A(3) (b) and (c) Companies Act Section 216A(3)(a) Companies Act
37
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