What are Shareholders Rights Laws?

Shareholder Rights Laws pertain to the rights of those who own shares of stock in a corporation.

Priority

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

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.

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.

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.

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.

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.

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.

A bill to provide shareholders with enhanced authority over the nomination, election, and compensation of public company executives.

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

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).

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.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.

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 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.