This article is written by Ms Kamakshi, a 4th year law student from REVA university

Common stockholders of the company have certain rights relating to their investments. An important shareholder right is the right to vote on certain company issues. Shareholders generally have the right to vote on board elections and anticipated corporate changes, i.e. changes in corporate initiatives and goals, or fundamental structural changes. This article explains the provisions of the Companies Act 2013, restrictions and special cases relating to voting rights of shares. Section  47 of the Companies Act 2013 relates to the voting rights of company shareholders. Below are some of the main provisions of the Companies Act. Each member of a corporation limited by total shares to hold shares has one vote in resolutions relating to the corporation. The right to vote in a ballot is granted as a percentage of his shares in the paid-up share capital of the company. Therefore, if a shareholder owns his 51% of the paid-up shares, the shareholder has the right to exercise majority control over the company. A shareholder’s voting rights under Section 47 remain valid even if there is proof that the shares have been incorporated or have been vested by a relevant shareholder for whom an insolvency administrator has been elected. In addition to the election of the liquidator, the shareholders, without reference to any obligation or seizure of shares, may demand and vote at the shareholders’ meeting, with reference to Section 100 of the Act.

Powers of shareholders through voting: Company shareholders have the power to appoint and remove directors in accordance with the provisions of the Companies Act 2013 (Companies Law). The board may also appoint any person as an additional, alternate or nominated director if the company’s articles of association so provide. Additional directors will remain in office until the date of the next Annual General Meeting or the last day on which an Annual General Meeting is to be held, whichever is earlier, and their reappointments will be considered by the shareholders at the General Meeting.

Shareholders have the power to remove any board member by a simple majority after giving the relevant board member an opportunity to be heard. However, shareholders cannot dismiss directors appointed by the National Company Law Tribunal or directors appointed by minority shareholders under the proportional representation system under the provisions of the Companies Act. In principle, shareholders do not interfere in the board’s decision-making process. However, under the Companies Act, the board of directors must refer certain important matters to shareholders for approval. Shareholders may remove a director in accordance with the procedures stipulated by the Companies Act if the director acts in bad faith or if such act is contrary to the interests of the company.

Extent of voting rights: Articles of the Companies Act and Regulations of the Securities and Exchange Board of India (SEBI) permit the issuance of shares with disproportionate rights in terms of voting rights, dividends, etc. effect.

Limited liability companies and privately held public companies may issue shares with voting rights, dividends or otherwise disproportionate rights, subject to certain conditions, including:

Voting rights on shares with differential rights, including voting rights on shares with differential rights issued at any time, may not exceed 74% of total voting rights.

The company has not failed to file its annual accounts and annual accounts for the three fiscal years immediately preceding the fiscal year in which it was decided to issue these shares.

The company has not perpetually defaulted in paying declared dividends to its shareholders. and

The issuance of shares is authorized by ordinary resolution of the company’s shareholders’ meeting. 

SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 prohibits listed companies from issuing shares that may give individuals voting or dividend rights in excess of the rights held by already listed shares. increase. However, a listed company with preferred voting shares  issued to its founders or founders may, under the provisions of the SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2018, through bonuses, splits or issuance of rights to shareholders. have the right to issue such additional shares. and corporate law.

requirements for shareholders to participate in general meetings: A general meeting of shareholders cannot be held effectively unless a quorum, which is equal to or greater than the quorum stipulated by the Companies Act, is reached. The minimum quorum for a private company is the presence of two members, regardless of the number of members in the company.

Listed companies are subject to the following minimum quorum requirements:

5 if the number of members is 1,000 or less.

15 if the number of members is 1,000 or more and 5,000 or less;

If the number of members exceeds 5,000, 30 attend.

Shareholders’ meetings and voting: An individual shareholder may attend the meeting or through a shareholder-appointed proxy (which must be an individual) to attend and vote at the meeting. Representatives shall not speak at such meetings and shall have only the right to vote by ballot. No proxy shall have the right to vote by show of hands, except as permitted by the Articles of Incorporation of the Company.

If the shareholders are legal entities, they may appoint individuals as representatives who are authorized to attend and vote at the shareholders’ meetings. Such authorized representatives shall have all the rights of shareholders, including to speak and vote on all matters at general meetings, regardless of method of voting. For listed companies and companies with more than 200 shareholders, shareholder approval on certain matters requires the introduction of a postal voting mechanism or voting by electronic ballot.

Publicly traded companies or other companies with more than 1,000 shareholders are required to provide their members with an electronic voting facility for shareholder meetings. The Companies Act does not allow virtual shareholder meetings. However, due to the Covid-19 pandemic, the Ministry of Enterprises has allowed companies to hold their annual and extraordinary shareholders’ meetings by videoconferencing or other audiovisual means until June 30, 2022.

Shareholders and the board: Shareholders’ meetings are usually convened by the board of directors. However, a shareholder holding 10% or more of his shares can request that the Board of Directors convene an Extraordinary General Meeting of Shareholders (EGM) and provide details of the resolutions it plans to pass at that meeting. If a director does not call an extraordinary meeting of shareholders within 21 days from the date of receipt of such request, or within 45 days from the date of receipt of the request from the shareholder, the shareholder himself may convene the meeting within 3 days. can. Several months from the date of billing through the prescribed procedures.

There is no specific provision in the Companies Act obliging directors to distribute the dissenting shareholder declaration to all shareholders. However, dissenting shareholder statements made during a meeting may be recorded in the minutes of such meeting, subject to the approval of the chairman of such meeting.

Controlling shareholders’ duties: Decisions that require approval of the shareholders are taken with the consent of the majority shareholders. It is expected that all decisions must be taken in the interest of the company and its stakeholders, and not to benefit only a section of the shareholders at the expense of other shareholders. If the majority shareholders benefit themselves at the expense of the minority shareholders or take such actions that are oppressive to them, the minority shareholders have the right to act against the majority shareholders to protect their interest. 

 As per the Companies Act, action for oppression and mismanagement can be initiated against the controlling majority by at least 100 shareholders or one-tenth of the total number of shareholders of a company, whichever is less, or shareholders holding at least 10 per cent of the issued share capital of a company. 

 The Companies Act provides for class actions by the minority shareholders for seeking restraining orders against the company, its directors, auditors or any expert, adviser or consultant for any action taken by them that is ultra vires to the memorandum or articles of the company, or other actions that are prejudicial to the interest of the company and its stakeholders and claim damages or compensation from them.