You and a squad of 4 friends stumbled on a great business idea in your final years of school – from all feasibility tests, this was a big one and definitely had a gap to fill in the market.
So you all go on to start this business, together, getting it incorporated, raising much needed funding from investors, making profit gradually. You are all co-founders now, and hold a stake in the business’ shares.
But what does being a shareholder mean? This article will help you understand this.
Who is a Shareholder?
Shareholders are the owners of the company who provide financial backing in return for potential dividends over the lifetime of the company. For one to be a shareholder of a company, he or she must have some equity/stock of the same company.
Shares of small corporations are usually not sold publicly. Instead, these corporations are closely held, meaning they have a small group of shareholders.
Worthy of note is that the new CAMA 2020 replaced the former minimum authorised share capital with a requirement for companies to maintain a minimum issued share capital.. Private companies now have a minimum issued share capital of N100,000, while public companies are held to a minimum issued share capital of N2,000,000.
What Rights Do I Have As A Shareholder?
- Rights to information
Getting the audited financials, annual reports – and access to published quarterly results are basic information every shareholder has a right to. They also have the right to investigate the company’s administrative and financial records.
- Rights to Transfer Shares
Shareholders can transfer ownership of their shares to willing buyers as long as there are no restrictions on the transfer of shares in the Articles of Association by the company . This is done through the services of a stockbroker.
- Rights To Receive Dividends (From Operations Or Liquidation)
Shareholders are entitled to profits in the form of dividends. Dividend is a reward to shareholders for their investment, usually by distribution of part of the earnings of the business. Even though a company has no explicit obligation to pay a dividend, to enhance shareholder value and prevent share price from dropping, payment of dividends is important.
Dividends can be in cash or distributed as bonus shares to the shareholders.
- Right To Vote On Company Matters And Elect Directors
They also have a right to vote on fundamental matters affecting the company, such as mergers, acquisitions, and amendments to the corporate charters. In the same vein, shareholders also have a right to elect directors and, in certain cases, to specify limits of their powers. This allows them to agree on those who can represent their shared interests best.
- Right of Legal Action Against the Company
Shareholders can sue the company in which they hold shares, if their interest has been injured or if they have been victims of poor management via shareholder class-action lawsuits
With these few points of ours, we hope you now recognize that knowing your rights is an important part of being an informed shareholder. Although the Securities and Exchange Commission (SEC) of Nigeria and other regulatory bodies enforce a certain standard for shareholder rights, an enlightened shareholder is less vulnerable to risks and better positioned to protect his/her investments.