Legal Rights of Shareholders
The members of a company are the owners and custodians of the company. The shareholders are the members of a company which is limited by shares. The shareholder shall have legal rights which are more limited in nature than the rights granted to conventional owners. The powers are restricted to non-interference in managerial decisions. The powers include the right to vote in meetings which includes the resolutions regarding appointment and termination of directors. The member has the right to propose resolutions in meetings and is also in the position to receive distributions from the company in the form of dividends. The member can take active participation in the functioning of the company and can also receive certain restricted information about the company. The rights of the members are governed by the company’s constitution and the constitution also gives rights to the members which are in addition to the already existing rights. To become a member, the individual can apply for registration. Other means of becoming a member are by receiving transfers or by applying for shares. In cases of death or bankruptcy, the member might receive shares by method of transmission. The details of the members, like his address, name, the class of shares he is holding, the date when his name was entered on the register, the share certificate number has to be entered on the registered which is maintained by the company. The power of the member includes a right to apply for rectification in cases of error in the share register. The right of the member shall also extend to purchasing assets, taking decisions in passing resolutions, approving the remuneration of directors. Section 124(1)(d) talks about dividends which is defined as a portion of a company’s assets that the company has the power to distribute to its shareholders. Edwards v Halliwell [1950] 2 All ER 1064 at 1067 held that the shareholder cannot gain information more than that is provided and gaining more information is deemed cumbersome. A member cannot claim to be paid a dividend by the company. It is paid at the discretion of the company. Dividends are only paid in cases of the company passing the balance sheet solvency test. Jonathan Ferrer in his article The Case of the Mandatory Disclosure of the Dividend Decision discussed about how Australian laws are not equipped enough to regulate dividends. The journal is has been very enlightening in connecting the lecture to the current scenario of regulation of dividends.
Role of Members in a Company
Corporate governance is said to be a framework of rules, systems by which authority is exercised and controlled in a corporation. The process of corporate governance helps in holding the company’s defaulters accountable. The key components of the Australian form of corporate governance are- Transparency, accountability, stewardship and integrity. The importance of corporate governance lies in laying solid foundation for management. Under the framework of corporate governance, the members are mandated to act ethically keeping in mind the ethics and principles of the company. The members are obligated to make timely disclosures regarding the functioning of the company. Under corporate governance, the members have to analyze the risks and mitigate them accordingly. Under the model of corporate governance, the members of the company need to be fairly remunerated and compensated in cases of breach. As stated by Tricker and Tricker (2015) it is important to effectuate corporate governance in company to ensure that the members have their rights recognized in a corporate set up.
In understanding the management of a company, it is important to understand the roles played by officers, directors, company secretaries and the senior managers. The director is appointed by the board to ensure that the functions of the company are carried out properly. The director is appointed by the company to ensure the smooth functioning of the company. A director can be appointed formally, or could be serving the position of a de facto director or a shadow director. The de facto director works as a director but he has not been appointed in a proper way. The director works independently for the company and no one has the right to interfere in the functioning of the company. The company works in a contract with the directors and the shareholders and tries to work in the best interest of the company (Dodd 2017). The board of directors governs the functioning of the company and they are an independent body who do not work under the guidance of any member. The board of directors has the sole authority to remove directors, wind up the company, and sell the shares of the company (Kraakman and Hansmann 2017). The company works in accordance with the terms of the constitution and according to the decided rules held at the annual and general meeting. The directors have to work for the enhancement of the best interest of the company and in cases when the directors fail to work accordingly, he is disqualified and terminated. Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 is a landmark judgment given by the New South Wales Supreme Court regarding the essentiality of corporate governance (Laster and Zeberkiewicz 2014).
Corporate Governance Framework
The director owes a duty of care and diligence towards the company. The director has to according to the pre mandated requirements of diligence and care. The director is exempted from breaching the duties of get himself involved in any unfair trading. The directors are expected to promote the best interest of the company. The director is in a fiduciary relation with the company, that is, the director has to act in good faith and best interest of the members and shareholders of the company. The law governing the rights and duties of the director are common law, The Corporations Act and the employment contract. Australia is governed by common law and the laws of United Kingdom. The company cannot be allowed to trade while it is insolvent and this right exists solely with the director of the company. The director has to ensure that the company does not start insolvent trading. The director cannot act in an unlawful way so as to deprive the shareholders of their rights. This principle has been reinstated by Chen and Zhou (2016) wherein the authors have emphasized on the rights and duties of the directors and how a breach can lead to paying huge amounts to others. The director owes a duty of care and has to act reasonably to ensure that no foreseeable harm is inflicted on the members of the company (Stephens 2017). The director cannot work for personal gains, that is, he cannot make unjust enrichment at the cost of the company. The director should not be in a position of conflict with the company and in no way shall compete with the company. All information of the company is private and confidential and therefore the director has to keep them private and not make the information known to the public at large. The most important role that the director has to play is keeping the interests of the company ahead of himself and place himself in a position of trust. The ASIC is the authority regarding taking responsibility of penalizing anyone who breaches the principles and rules of the company law. In cases of breach, both civil and criminal penalties will attach. Whenever a company seeks remedy for breach of company, he may do so by asking for compensation or damages. Sections 140(1)(b) and section 180 talk about the company’s obligation of duty of care and due diligence.
There are two kinds of remedies available to a member in case of breach of corporate duties. The remedies are either criminal or civil in nature (Brickey and Taub 2017). Criminal remedies are not the only option available to a member of a company. In cases of misbehavior by a director or controller they are deterred by criminal prosecution and by imposition of fines. In cases of loss or damage, the aggrieved member may ask for refund of money or compensation to be paid as damage (Webb, Tarun and Molo 2017). The civil proceedings are also an available option in cases of breach of company directives. In cases when there is a breach of statutory duties, the rights if the members are preserved by the help of section 229(7) of the Corporations Act which say that the company shall recover all the money from the wrongdoer and compensate the member. By virtue of Section 246(b)(4), a company issues shares by which rights are attached to the members and in cases of breach by shareholders, the members shall be compensated accordingly (Edmond and Roberts 2017). The court in the case of XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 while awarding exemplary damage held that compensation has a jurisprudential preference for restitution and the aim is not to punish but to compensate the member in cases of statutory breach by the wrongdoer(Mansell 2015).
The lectures have given me a concise idea about the functioning of the company and also about the rights and duties of the directors, shareholders and members.
Reference
Brickey, K.F. and Taub, J., 2017. Corporate and white collar crime: cases and materials. Wolters Kluwer Law & Business.
Chen, Z., Li, O.Z. and Zou, H., 2016. Directors? and officers? liability insurance and the cost of equity. Journal of Accounting and Economics, 61(1), pp.100-120.
Dodd, E.M., 2017. For whom are corporate managers trustees?. In Corporate Governance (pp. 29-47). Gower.
Edmond, G. and Roberts, A., 2017. The Law Commission’s Report on Expert Evidence in Criminal Proceedings. Expert Evidence and Scientific Proof in Criminal Trials.
Kraakman, R. and Hansmann, H., 2017. The end of history for corporate law. In Corporate Governance (pp. 49-78). Gower.
Laster, J.T. and Zeberkiewicz, J.M., 2014. The rights and duties of blockholder directors. The Business Lawyer, pp.33-60.
Mansell, S., 2015. Book Review: Rejoinder to Veldman’s review of Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory (Vol. 22, No. 2, pp. 271-275). Sage UK: London, England: Sage Publications.
Stephens, B., 2017. The amorality of profit: transnational corporations and human rights. In Human rights and corporations (pp. 21-66). Routledge.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
Webb, D.K., Tarun, R.W. and Molo, S.F., 2017. Corporate Internal Investigations. Law Journal Press.
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