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
- C Corporation 101 – Everything You Need to KnowC corporations are more commonly known as just corporations. These are usually what are talked about when someone is explaining a big business. They are the classic company with hierarchical structure that textbooks describe. When there is a need for a large or public organization, this is usually what is created either initially or after some time through a conversion.
- Watch Out for These Pitfalls of Minority OwnershipMany individuals dream of owning a business during some point in their life. Some invest a small percentage into a business while leaving themselves available for other investments or full-time employment. When there are owners with a larger interest than these individuals, it is important that minority owners understand their rights and their limitations.
- Can an Owner Refuse to Continue a Profit-Sharing Agreement Due to Expiring Lease?Some business owners agree to a contractual obligation of profit-sharing when the circumstances are just right. However, knowing what to do when the situation goes sour is important. Some creators of a company are plagued with complications that arise due to factors out of their hands.
- The Necessary Steps to Remove the Owner of a Corporation When Revenue FallsOne common reason to remove an owner or shareholder from a corporation is because he or she is not providing an adequate profit for the business. How shareholders are removed varies state to state.
- When Co-Owners Split, Disaster StrikesJust like with married couples, many businesses decide to get a “divorce.” However, in this instance getting a divorce may mean the end of an entity that can result in the closure of a business, the loss of jobs and other serious consequences. When business owners are in a dispute, issues can quickly get complicated and nasty.
- Expert Witness: Business Owner Conflicts with ShareholdersConflicts between business owners and shareholders are not uncommon. The duties and direction between these two groups are often opposing. These conflicts are often more pronounced when dealing with smaller businesses. These businesses may not have as extensive oversight as publicly-traded companies do. Recognizing the adverse nature between the parties can provide an expert witness with the background to explain the conflict to a judge or jury.
- Do Investors in My Small Business Have the Right to Take Over and Issue Shares Without My Permission?Many small businesses provide the ability for the business to have shares issued. These shares help provide the financial backing that a business often needs to get off the ground. However, in some situations, having shares changes the arrangement related to the ownership and power dynamic of the business.
- When a Buy-Sell Clause May be TriggeredBuy-sell agreements are integral to contracts, various agreements and documents necessary in businesses either during the run of the company or when it is being created. These files are drafted to ensure there are no biased or previously determined manners of transferring the ownership of the company from one party to another.
- Shareholder Rights Against a DirectorSome directors in a company start actions that are in opposition of what shareholders want. These decisions may take the business in a direction that is not what may be considered best for transactions, the value of the organization and to accrue revenue.
- Importance of Planning for the End of the Business at the BeginningWhen starting a new business, the potential owner should keep in mind what it takes to end the company as well. This may mean a failure, a transfer of ownership, selling the business in pieces or other concerns.
- All Business and Industry Law Articles
Articles written by attorneys and experts worldwide discussing legal aspects related to Business and Industry including: agency and distributorship, agency law, business and industry, business formation, business law, commercial law, contracts, corporate governance, corporate law, e-commerce, food and beverages law, franchising, industrial and manufacturing, joint ventures, legal economics, marketing law, mergers and acquisitions, offshore services, privatization law, retail, shareholders rights and utilities.