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KNOW YOUR RIGHTS AS A SHAREHOLDER

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Under general principles of corporate governance, shareholders have certain rights that the board of directors must observe. In many companies, the board of directors and the shareholders are the same persons and therefore the chances of a conflict arising between the two parties is minimized. However in some other companies, the shareholders and the directors are different persons and therefore such companies require a higher level of corporate governance. Generally, the board of directors is responsible for determining the strategic goals of the company and ensuring that these are met. They are also responsible for the overall performance of the company and ensuring that shareholder wealth is maximized.  The board of directors is therefore responsible to the shareholders and any conflict of interest between the two should be well managed.

 

Shareholder rights have not been specifically defined in the Companies Act; however the same can be deduced from the memorandum and articles of association and some of the Companies law provisions. The articles of association generally provides for the manner in which the company should be governed and therefore in the event of mismanagement, shareholders can find reprieve through the Companies Act. Directors’ roles and responsibilities are set out in the Companies Act as well as the articles of association. This means that in the event of mismanagement of the company, a shareholder can seek redress from the court against the directors. Shareholder rights are set out under principles of corporate governance which unfortunately are not binding on the company. They however provide a guideline and benchmark for the board of directors on how to govern a company. The most important shareholder rights include increase and maximization of shareholder value and secondly, that shareholders have a right to access information that is held by the board. Therefore the board must divulge any information that it is privy to and that would affect shareholder value.

 

In as much as there is no direct law on shareholder rights, in my opinion some constitutional provisions can assist shareholders uphold their rights in a company. One such constitutional provision is found in Article 40 which guarantees that every citizen has a right to own property and also have their property protected by the state. Shares can be classified as property in as much as it is intangible property. When someone buys shares into a company, it forms part of his wealth and assets and therefore in my view, shares are property. Article 40 can therefore be used to uphold shareholder rights. Some of the protection that is granted to property owners under the Constitution is the right not to have their property arbitrarily acquired and that is forceful acquisition of the same.

 

Article 35 is the other constitutional provision that shareholders can resort to so as to uphold their rights. Article 35 guarantees the right to receive information and particularly information that is required to uphold another right. Therefore in my view, any information a shareholder would require to uphold his share value would fall under this classification. In the event that the board is not transparent or there is suspicion of dishonesty, then shareholders can seek orders founded on Article 35 compelling the board to release such information.

Other remedies available to a shareholder and that uphold shareholder rights include the Companies Act and the memorandum and articles of association. The memorandum and articles should therefore be drafted with this understanding.

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