Understanding Shareholder Rights and Responsibilities
A shareholder is an owner of shares in a company. A shareholder can be a physical person or a legal entity (such as a company). Shareholders can also be referred to as members of a company. The extent of control of a shareholder on a company depends on the percentage of shares he/she owns.
Although the shareholders own the company, it is the directors of a company that represent the company and sign most of the paperwork such as forms submitted to the Companies Registrar but also contracts that bind the company. However, the shareholders do have control over the directors and determine the company’s business activities. Through the general meetings of the shareholders, they have significant control over the directors. The directors manage the day to day running of the company, but it is the shareholders who have the right to appoint and remove directors.
Some of the rights of the shareholders include:
- Selling their shares;
- The amendment of the company’s Memorandum and Articles of Association;
- Changing the company’s name;
- Changing the company’s capital;
- To issue Court proceedings against the company and/or its directors for breach of duty;
- To appoint and remove directors;
- To appoint and/or remove the auditors of the company;
- To enter into shareholders’ agreements;
- To access company documents such as the company’s register of members and the minute books;
- To pursue voluntary liquidation of the company;
It must be stressed that shareholders are the owners of the company and the fact that directors manage the company should not give the false impression that the directors control the company. On the contrary, directors are under the control of the shareholders who even have the power to remove them.
Shareholders can pass decisions through ordinary, extraordinary and special resolutions. Further, the shareholders participate to the Annual general Meeting which decides key matters such as how the dividends are distributed to the shareholders and approving the financial statements of the company.
Nominee shareholders
In Cyprus it is common, especially if the company is owned by foreign citizens, for a company to have a nominee shareholder. The nominee shareholder is a trustee who holds the shares in the name of the ultimate beneficial owner of the company based on a declaration trust. The nominee shareholder follows the instructions of the ultimate beneficial owner of the company and signs documents as per the instructions of the beneficial owner of the company.
