Shareholders and
shareholders’ rights
Zheng Yitong
Why
Why is it so important?
What
What it include?
How
How to protect shareholders’
interests?
Why
Why we need to protect shareholders’ rights?
Why we need company？
Company could be deemed a milestone in modern
history due to its significant promotion in encouraging
investment and enhancing efficiency of modern
business.
2E
1.Encourage investment: Limited liability, Separate
shareholders from company.
2.Enhance efficiency: ownership and management are
separated .
Balance
“Company law mediates the rights and duties of the
two main organs of UK companies: the board of
directors and the general meeting. It sets a
mandatory floor of rights for people who have
invested in companies, and is concerned with the
measure of power that representatives on the board
have to control what the company does, when it is
liable and how rights within a company are
exercised…”
--http://en.wikipedia.org/wiki/United_Kingdom_company_law
“The most important rules for corporate governance
are those concerning the balance of power between
the board of directors and the members of the
company. “
-- http://en.wikipedia.org/wiki/Company_law
How to medicate the rights and
duties of directors and shareholders ?
Stipulate shareholders’
rights in Company Law
In a nutshell
1. How certain shareholders’ rights restrict directors
or large shareholders’ behaviors.
2. How the law try to balance the two parts which are
shareholders, especially small share holders, and
larger shareholders as well as directors.
ASPECT
We may interpret the whole Chinese company as
a tool to “mediates the rights and duties of the two
main organs of companies: the board of directors
and shareholders”.
Just like
We could interpret the whole Chinese company
law as a series of contracts.
What
What are shareholders’ right?
——we can categorize shareholder's rights into 14 aspects
1.Voting Right
Definition
How to enforce the right?
Article 43
Shareholders shall exercise their voting rights at
the shareholders meeting in proportion to their
capital contributions, unless otherwise stipulated
by the articles of association.
1.Voting Right
Importance
Approach to participate into company’s
management indirectly by voting in shareholders’
meetings.
1.Voting Right
Restriction
Article 104
When a shareholder attends the general meeting of
shareholders, each share he holds is entitled to one vote.
However, the share held by the company itself shall not
have the voting right. A resolution adopted by the general
meeting of shareholders requires affirmative votes by a
majority of the votes held by shareholders attending the
meeting. The resolution with regards to amendment to the
articles of association, increase or decrease of registered
capital, merger, division or dissolution of the company or
change of the form of the company requires affirmative
votes by at least two-thirds of the votes held by
shareholders attending the meeting.
1.Voting Right
Restriction
Article 16
The shareholders described in the preceding paragraph
or the shareholders dominated by the actual controller
described in the preceding paragraph shall not
participate in the voting process on the matters described
in the preceding paragraph. The vote on such matters
shall be adopted by more than half of all the other
shareholders attending the meeting.
2.Right to elect directors or supervisors
Definition
Importance:
—Participate in company’s management
Accumulative voting system
Article 106
The general meeting of shareholders shall adopt accumulative
voting system when voting on the election of directors or
supervisors in accordance with the articles of association or the
resolution adopted by the shareholders’ general meeting. The
accumulative voting system referred to herein means that in the
election of the directors or supervisors at the general meeting,
the number of votes attached to each share held by a
shareholder shall be equal to the number of candidates. A
shareholder can multiply his voting shares by the number of
candidates and vote them all for one person for director or
supervisor.
3.Right to transfer shares
Definition
Importance:
——also transfer risk and get profit
Difference between two forms
——limited liability& joint stock limited
4.Right to know the facts
Definition
——right system
Article 34
A shareholder shall have the right to view the articles of
association, the minutes of shareholders meetings,
resolutions of board of directors and board of supervisors
and the financial and accounting reports of the company.
4.Right to know the facts
Importance:
——significant progress
Restriction
Shareholders may view the accounting books and reports of the
company. For this purpose, they shall submit a written request and
state reasons. Where the company reasonably believes that
shareholders have unjust purposes in viewing the accounting books
and reports which may harm the legal rights and interests of the
company, the company may refuse such request and shall, within
fifteen (15) days of such request, reply in written form and state
reasons. Given such, shareholders may apply to the people’s court
for an order under which the company shall provide the
shareholders with such references.
5.Right to make a proposal or inquiry
Definition
Article 98
A shareholder is entitled to inspect the articles of association, the
record of shareholders, the counterfoils of bonds, the minutes of the
general meeting of shareholders, the board of directors and the
board of supervisors as well as its financial and accounting reports
and is entitled to make a proposal or inquiry concerning the
company's operation.
Importance
——supervisor
6.Right to draw dividend
Definition
Article 35
Unless otherwise agreed upon by all shareholders,
shareholders shall draw dividends in proportion to their
actual capital contributions and, where a company
increases capital, shall have priority in subscription for new
shares in proportion to their actual contributions.
Importance
——core right
6.Right to draw dividend
Restriction
substantive requirements & procedural requirements
Article 167
After the company has covered its losses, and made
allocation to the reserve funds, the remainder of the profit
shall be distributed to the shareholders in accordance with
the provisions of Article 35 in the case of a limited liability
company, and in proportion to their share holdings in the
case of a joint stock limited company unless otherwise
stipulated in its articles of association.
Restriction
Article 47
The board of directors is accountable to the shareholders
meeting and shall exercise the following powers:
(5) preparing profit distribution plans and plans to cover
company losses
Article 38
The shareholders meeting shall exercise the following
functions and powers:
(6) to examine and approve plans for profit distribution of
the company and plans for making up losses
7.Priority in subscription for new share
Definition
Article 35
Unless otherwise agreed upon by all shareholders,
shareholders shall draw dividends in proportion to their
actual capital contributions and, where a company increases
capital, shall have priority in subscription for new shares in
proportion to their actual contributions.
Importance
——sustain
8.Make a proposal to convene interim
shareholders meetings
Definition
Article 40
Shareholders meetings shall be divided into regular meetings and interim
meetings. Regular shareholders meetings shall be convened on time as
stipulated by the articles of association of the company. Interim
shareholders meetings may be convened upon proposal made by
shareholders representing more than one-tenth of voting rights or by
more than one-third of directors, or at the request of board of supervisor
or the supervisors of a company absent a board of supervisors.
Article 101
The general meeting of shareholders shall hold an annual meeting each
year. An interim general meeting of the shareholders shall be held within
two months upon the occurrence of any of the following circumstances:
3) Shareholders holding at least ten percent (10%) of the company's
stocks make a request;
8.Make a proposal to convene interim
shareholders meetings
Importance
——Interim meeting can be convened by
certain amount of shareholders while the
situation is special or urgent. Then shareholders
benefits could be well protected.
9.Right to convene and preside the
shareholders meetings
Definition
Article 41
Where a limited liability company has a board of directors,
its shareholders meeting shall be convened by the board of
directors and presided over by the chairman of the board.
Where the chairman of the board is unable to or does not
perform his function, the meeting shall be presided over by a
vice-chairman. Where the vice-chairman is unable to or does
not perform his function, the meeting shall be presided over
by a director jointly nominated by more than half of the
directors.
….., the meeting shall be convened and presided over by
shareholders representing more than one-tenth of the voting
rights.
9.Right to convene and preside the
shareholders meetings
Importance
——also protect the shareholders’ rights in this
situation.
10.Submit a temporary written proposal
Definition
Article 103
Shareholders individually or jointly holding three percent of
the shares of the company may, ten days prior to the general
meeting of shareholders, submit a temporary written
proposal to the board of directors.
Importance
——Voice would be heard
11.Request the company to purchase his
shares
Definition
—— “divorce”
Requirements
——limited liability company & joint stock
limited company
11.Request the company to purchase his
shares
limited liability company
Article 75
The shareholder voting against the decision of the shareholders meeting
in respect of any one of the following circumstances may request the
company to purchase his shares at reasonable prices:
(1) the company will not distribute dividends for five consecutive years
though the company has made profit over these years and has met the
distribution requirements prescribed in this Law;
(2) in the event of merger, division or assignment of the company’s
major assets;
(3) in the event of expiry of the company or any other causes for
dissolution prescribed in the articles of association, the shareholders
meeting has adopted a resolution to amend the articles of association to
renew the company.
11.Request the company to purchase his
shares
joint stock limited company
Article 143
A company may not purchase its own shares, except in the
following cases:
(4) requesting the company to purchase its own shares where
shareholders of the company oppose the decision on merge
or division of the company made at a general meeting of
shareholders.
12.Request the court to wind-up the compan
Definition
Article 183
Where there are serious difficulties in the operation of a
company and the company’s continuance will definitely
cause significant losses to shareholders’ interests, however,
such scenario cannot be solved through other channels, then,
shareholders representing 10% of all the votes may request
the people’s court to dissolve the company.
Question:
Is it really helpful to protect shareholders’
rights by winding-up company?
Deter
13.Right to get the remain assets in
company’s liquidation
Definition
Restriction
——when all the creditors are paid
14.File suit before a people’s court
Definition
Article 153
Where a director or senior officer violates laws,
administrative registrations or the articles of association, or
infringes upon the rights and interests of the shareholders,
the shareholders may file suit before a people’s court.
14.File suit before a people’s court
categorize
direct claim——For the shareholder’s own benefit
derivative claim ——For the whole company’s benefit
importance
How
How to protect shareholder's interests?
summary
Four types:
right to draw divind
right to participate in company's
management
right to know facts
right to sue
summary
One problem:
How to protect the small shareholders’
rights?
The right to convene and preside the shareholders meetings
Submit a temporary written proposal
Accumulative voting system
Right to know the facts
file suit before a people’s court
……
waiting to be resoled….
Thanks all