Angela Kathuria 3rd year law student from Gitarattan International Business School college
Introduction
Voting Rights
Section 47 of the Companies Act 2013 deals with the voting rights of company shareholders. Below are some of the key provisions of the Companies Act. Each member of a company limited by shares to share capital has the right to vote in all decisions relating to the company. Voting rights are determined by the percentage of his/her share in the paid-up capital associated with the company. Therefore, shareholders can exercise a controlling interest in the company if they own 51% of the company’s stock on a paid-in capital basis.
Restrictions on Voting Rights
The company’s articles of incorporation may set certain limits on the voting rights of shareholders. For example, the articles of incorporation of most companies restrict voting rights on unpaid shares or shares paid in a lump sum.
DEFINATION
Voting shares are shares of a company that give shareholders the right to vote on major issues in the company. In principle, this is one vote per share. A stock represents an ownership stake in a company. There are no restrictions on the types of shares that can be specified in the company’s articles of incorporation, but privileges and restrictions must be clearly stated in the articles of incorporation. If there is only one class of stock, the stock includes at least:
vote
Dividend right
Ownership in case of dissolution of the corporation
Voting shareholders may also be empowered to elect or remove directors, review financial and company records, and appoint auditors of the company. Voting shareholders generally have limited liability to the company and their exposure to risk is limited to the amount paid for the company’s stock and debt.
Below we explore the importance of voting shares and how and why they are allocated. If you are considering starting your own company, it should be part of your corporate strategy.
Importance of Voting Rights
As a rule, companies create more than one type of stock to concentrate voting rights in a small number of people. Offering voting stock to only a few people can also deter hostile takeover attempts by preventing stockholders who are not the company’s founders or executives from voting to buy back stock in another company at a premium.
Because many shareholders may not be interested in the company’s long-term strategy or to hold their stock for the long term, the company may choose to issue shares with voting rights only to select people. After all, someone with only short-term interests in mind cannot vote for measures that protect a company’s long-term position relative to the stock’s short-term value.
Advantages
The income generated from this has proven beneficial in terms of capital gains and dividends.
Owners of such stock may participate in the decisions and policies of the Company.
They could use their voting rights to issue a kind of internal corporate governance methodology.
They have a certain amount of freedom to decide how the company operates and who the board members are. The number of shares owned by one person equals the number of voting rights. Therefore, their opinions are stronger when they own huge blocks of stock. Dividends are not guaranteed, but some dividends may be in question if the company so desires.
When released, power is evenly distributed. It is not owned by a small number of individuals or company owners and their families. This leads to distribution of ownership and transparency.
Issuing voting stock makes decision-making much more democratized and more people involved. The statutory obligations regarding shareholders are limited and limited. Stocks are very liquid and easy to track. Calamity
DISADVANTAGES
Since the preferred stock must be paid first, it is paid last in case of bankruptcy. Preferred shareholders are required to receive payment on a guaranteed basis, so the dividends they receive are not guaranteed. It is a high-risk investment by affiliates because if the company goes out of business or goes bankrupt, shareholders must immediately stop investing. Voting shares are limited and, like preferred stock, are not issued in large volumes, making them inaccessible to the general public.
conclusion
Voting rights have their pros and cons. On the one hand, the owner has the right to vote and participate in the most important decision-making scenarios in the company, on the other hand, he/she can throw his/her investments as soon as the company goes bankrupt. In addition, since the number of stocks issued under these standards is limited, it is very difficult to access such stocks without a foothold in company management. The more shares you hold, the more votes you get. Because usually one week counts as one vote here.
How does it work
A stock or shares of a company usually means that a holding of one share or one million shares of a company has the same value. That is, you are considered the owner of the company. Companies also use this decentralized ownership model to raise capital for the company and use it for further operations or expansion. So we basically have two types of stock, voting or common stock and preferred stock.
. Here we will talk about how it works. Voting rights, or common stock, give shareholders the right or authority to vote on issues specific to the company and its circumstances. It is primarily used to develop company policies. Used when making responsible decisions. For example, when a company needs to acquire another company or go through a merger. whether the company should do share repurchases, who should sit on the board, who should lead the board and make other important decisions;
They appear with a preemptive
, which means that shareholders can reject new shares the company wants to put on the market. An essential aspect where common or voting shares are different from preferred shares is at times of bankruptcy or solvency
. The other aspect of difference is preferred shareholders get paid a dividend by the company while common shareholders or voting shareholders are paid less or are not guaranteed. If the company goes bankrupt, the preferred shares must be paid first by the company by selling off its assets. Then whatever remains after preferred shareholders are paid dividend by the company
which common shareholders or voting shareholder are comparatively paid less or is not guaranteed. Example of Voting Shares
example
Let`s take an example of the type of shares issued
by the internet giant Google. Google has three types of stock issued: Class A, Class B, and Class C. These three stocks are different in their own ways.
Class A: Common stock issued by Google and owned by investors with voting rights, entitled to vote in the company’s policy-making scenarios and to form the board of directors. Class B: B shares
It is owned only by the founders of the company and has 10x more voting rights than Class A shares.
. These stocks are very limited in number and only a handful of people own them. They are not even traded between populations. Class C: These are similar to preferred shares, which are generally traded in the public and have no say in company matters or policy development scenarios.
REFERENCES
https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
Aishwarya Says:
Law students often face problems, which they cannot share with their friends and families. We have started a column on our website Student’s Corner. In this column we are talking to several law students about the challenges that they face. Students who are interested in participating in the same, can fill this Google Form.
IF YOU ARE INTERESTED IN PARTICIPATING IN THE SAME, DO LET ME KNOW.
The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.
If you would also like to contribute to my website, then do share your articles or poems to aishwarya@aishwaryasandeep.com
Join our Whatsapp Group for latest Job Opening