Shareholders Rights Law
What are Shareholders Rights Laws?
Shareholder Rights Laws pertain to the rights of those who own shares of stock in a corporation.
Every corporation has a hierarchy of rights that accompany the three main types of securities that companies issues (bonds, preferred stock, and common stock). The priority of each type of security is common stockholders on the bottom, with preferred stockholders over them, and bond holders having the greatest priority. This hierarchy becomes most important during the bankruptcy of a corporation, when bond owners have the greatest priority in recovering their investment from the assets of the corporation, and the common stockholders are least likely to receive anything.
Similarly, in addition to the priority rules for bankruptcy, the different classes of securities grant different rights to each class of owner. For example, common stockholders have voting rights, preferred stockholders receive dividends before common stockholders, and bondholders usually have rights as set forth in their bond indenture. Basically, common stockholders take greater risk, but stand to make a greater return on their investment if the company succeeds. Priority stocks are usually fewer in number and experience less increase due to trading when the company succeeds, while bonds are virtually guaranteed a payout but rarely have the same level of control of common stockholders.
Common Stock Rights
Common stockholders usually have the right to vote on major issues affecting the company, like mergers and liquidation of the corporation's assets. They also have part ownership of the company which can then be traded on a secondary market (the stock exchange). Common stockholders also have an entitlement to dividends, albeit, only after preferred stockholders. As part owners, common stockholders are also entitled to inspect the corporate books and records (usually accomplished through SEC mandated shareholder disclosures). Common stockholders can also sue the corporation for wrongful acts in law suits known as “shareholder derivative actions.”
Should you have additional questions about shareholders rights, you can review the materials below or visit our Law Firms page to find attorneys in your area that specialize in this area of law.
Shareholder's Rights Law - US
- ABA - Business Law Section
The Mission of the Section is to serve the public, the profession and the Section by furthering the development and improvement of business law, educating Section members in business law and related professional responsibilities, and helping Section members to serve their clients competently, efficiently and professionally.
- Corporate and Financial Institution Compensation Fairness Act of 2009
To amend the Securities Exchange Act of 1934 to provide shareholders with an advisory vote on executive compensation and to prevent perverse incentives in the compensation practices of financial institutions.
- Legal Duties of the Board of Directors
As a general rule, few state laws or court decisions specifically address the fiduciary duties owed by a mutual board. Nevertheless, it should be assumed that mutual boards owe duties to their company and members that are the same as the duties owed by directors of stock corporations to their companies and shareholders. In most states, these duties consist of the duty of care and the duty of loyalty.
- Proxy Democracy - Stockholder Rights
A company's stockholders have the legal right to make important decisions at the companies they own: they elect directors, review aspects of executive compensation, and weigh in on shareholder proposals addressing a variety of environmental, social, and governance issues. Shareholders can use their voting power to create economic and social value at the companies they own.
- Reference for Business - Shareholders - Overview
Shareholders or stockholders own parts or shares of companies. In large corporations, shareholders are people and institutions that simply invest money for future dividends and for the potential increased value of their shares, whereas in small companies they may be the people who established the business or who have a more personal stake in it. When investors buy shares of companies, they receive certificates that say how many shares they own. Owning shares of a company often entitles an investor to a part of the company's profits, which is issued as a dividend. In addition, shareholders are typically offered a fixed payout per share if the company is bought out.
- Shareholder - Definition
A shareholder is defined as the owner of one or more shares of stock in a corporation, commonly also called a "stockholder." The benefits of being a shareholder include receiving dividends for each share as determined by the Board of Directors, the right to vote (except for certain preferred shares) for members of the board of directors, to bring a derivative action (lawsuit) if the corporation is poorly managed, and to participate in the division of value of assets upon dissolution and winding up of the corporation, if there is any value. A shareholder should have his/her name registered with the corporation, but may hold a stock certificate which has been signed over to him/her. Before registration the new shareholder may not be able to cast votes represented by the shares.
- Shareholder Bill of Rights Act of 2009
A bill to provide shareholders with enhanced authority over the nomination, election, and compensation of public company executives.
- Shareholder Meetings - All Business
Every state has routine requirements for shareholder meetings. Generally, shareholders are required to have (at least) an annual meeting. The main purpose of this meeting is to elect the Directors of the corporation, but may include any other matter within shareholder control. Notice of the annual meeting must be in writing and sent to shareholders within a specified period of time, usually between 10 and 60 days prior to the meeting. Check your state's corporation statute for the minimum notice requirements, the specifics of which should be set forth in your corporation's Bylaws.
Organizations Related to Shareholder's Rights Law
- Committee of Concerned Shareholders
The Committee of Concerned Shareholders ("Committee"), formerly known as the Committee of Concerned Luby's Shareholders, consisting of individual shareholders of Luby's, Inc. ("Luby's") who met on a Yahoo! Finance Message Board in 2000, is the first grass-roots shareholder group to conduct a formal proxy fight. Luby's, then headquartered in San Antonio, Texas, was a 235-unit cafeteria chain with annual sales of approximately $500 million. Its shares are listed for trading on the New York Stock Exchange ("NYSE").
- Shareholder Rights Committee - International Corporate Governance Network (ICGN)
The aim of the Shareholder Rights Committee is to promote the ICGN’s position, as expressed in its Statement of Global Corporate Governance Principles, on the rights of shareholders. To this end, the Committee members monitor developments in their own and other markets. The Committee submits comment letters where there are concerns that current or proposed practice or regulation contravenes the rights of shareholders.
- Shareowners Organization
ShareOwners.org, incorporated as a 501c3 non-profit organization, was founded to create a voice for the average retail investor, who has not been heard in the corporate board room, Washington policy debates, or by the decision-makers in large financial institutions, including mutual funds. We call ourselves “shareowners” because we are the long-term owners of the companies in which we invest and we seek long term wealth creation by being responsible and engaged owners.
- United States Proxy Exchange
The United States Proxy Exchange (USPX) is a non-government organization, incorporated in the Commonwealth of Massachusetts, dedicated to facilitating shareowner rights, primarily through the proxy process. The USPX is structured as a chamber of commerce. Unlike a typical chamber of commerce, which represents corporate managers, we represent shareowners.
Publications Related to Shareholder's Rights Law
- Corporate Board Member Magazine
Corporate Board Member magazine is an information resource for senior officers and directors of publicly traded corporations, top private companies, and Global 1000 firms. Published quarterly, each issue provides readers with decision-making tools to help them deal with the challenges confronting their boards. Topics include corporate governance, board trends and best practices, director compensation, director liability, board education, board size and make-up issues, management succession, recruiting directors, board advisors, shareholder activism, audit committee issues, and much more.
- Shareholder Rights - All Business
The best tips and advice from our vast library of articles, videos, and business tools.
- What is a Shareholders' Agreement? (FAQs)
A Shareholders' Agreement (also called a "Stockholder" Agreement) is an agreement between all or some of the shareholders (or "stockholders") of a Corporation. This contract establishes the rights of shareholders and the duties and powers of the Board of Directors and management.
Articles on HG.org Related to Shareholder's Rights Law
- What to Do if You Suspect Securities FraudAfter the recent financial problems of the first part of the 21st century, it is natural for investors to be wary of those who handle their financial investments. So what should you do if you notice something questionable in your account statements or trade confirmations?
- Due Diligence in the SEC Registration Statement ProcessPrivate companies in going public transactions that intend to be quoted on the OTC Markets OTCQB must first become reporting with the Securities and Exchange Commission (the “SEC”). This is typically accomplished by the private company filing a Form S-1 registration statement under the Securities Act of 1933, as amended (the “Securities Act”).
- Article #7 – Summary and Plan of Action for Stock Option, Restricted Stock, Cash and Phantom Stock PlansThis is article #7 of a 7 article series. In this article #7, I give you 7 steps to implement your stock option plan, restricted stock plan, cash plan, phantom stock plan or stock appreciation rights. To review, there are two types of incentive plans: equity plans and cash plans. I discussed equity plans, that is, stock option plans and restricted stock, in prior articles #2-5. I discussed cash plans, phantom stock plans and stock appreciation rights in article #6.
- Article #6 – Cash Plans, Phantom Stock Plans and Stock Appreciation RightsIn this article #6, I explain how you use cash plans, phantom stock plans and stock appreciation rights. To review, there are two types of incentive plans: equity plans and cash plans. I discussed equity plans in prior articles #2-5. With an equity plan, you give employees stock options or restricted stock. Equity means ownership, so with an equity plan you give ownership in the company to the employees.
- Equity Plans, including Stock Options and Restricted Stock - Article 2In this article #2, I explain how you use equity plans, that is, stock option plans and restricted stock plans to reward and encourage your employees. Equity means stock or ownership, so with an equity plan you give ownership in the company to the employees. This article applies to both stock option plans and restricted stock plans.
- The Frankfurt Stock Exchange for Indian IssuersIndian companies are accessing the Frankfurt Stock Exchange (“FSE”) and other foreign capital markets in search of capital and liquidity for their shares. The Entry Standard of the FSE is an appealing option for Indian issuers seeking an access point to European capital markets. By Brenda Lee Hamilton, Attorney
- Investor Relations 101Investor relations involve the dissemination of information regarding a publicly traded company to create awareness of the public company and its business and to increase its stock price. The person who provides the investor relations services is known as a “Stock Promoter”. Stock promoters have used illegal practices and are often the subject of enforcement actions by the Securities and Exchange Commission (the “Commission”) is the stock promoter.
- FINRA Rule 6490FINRA Rule, 6490, recently enacted in September 2010, requires issuers of equities and debt securities not listed on exchanges to provide timely notice to FINRA of certain corporate actions. These corporate actions include name changes, forward stock splits, reverse stock splits, distributions of cash or securities such as dividends, stock splits and other actions, and rights and subscription offerings.
- New Listing Standards for Reverse Merger IssuersOn July 9, 2011, the Securities and Exchange Commission (“SEC”) approved rules to increase the standards for companies going public through a reverse merger to list on the New York Stock Exchange (“NYSE”), American Stock Exchange (“AMEX”) and the NASDAQ Stock Market (“NASDAQ”).
- Why Have Share Transfer Restrictions for Closely Held Corporations (or even LLC’s)Most people have investments that include stocks that are publicly traded, with the New York Stock Exchange or the NASDAQ. It is expected that shareholders will from time to time trade their shares. There are such large numbers of stock issued by a particular corporation that usually no transfer even affects who controls the corporation.
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