What are the voting rights of a shareholder? Importance

July 7, 2022
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What comes to your mind when someone asks you about voting rights.

so we are going to talk about the voting rights of a shareholder. Let’s get down to basics first.

Voting right is the right of a shareholder to vote at a company’s annual general meeting.

In other words, we can say that a voting right is the right of a company’s shareholders to vote on issues or businesses. He/she can vote on the integration of the board of directors, and can also vote on corporate activities. These activities may be mergers or acquisitions of other businesses or dividends. They can also vote on companies’ operations.

Deep Down: Voting Rights

Shareholders are generally notified of the annual meeting by mail, which includes a package summarizing the main issues to be discussed at the company meeting. These can include topics such as:

Electing directors to the board: Well, It is the most important exercise which has to be performed by the shareholder. Since they are the key persona of the company. They are the face of the company. A company’s growth and future purely depend on these persons.
Showing Green Flag to Merger and Acquisitions: Shareholders can also vote for the company’s acquisition of other companies for growth.
Stock Compensation: Shareholders can also share their views on the stock compensation plan. ESOP comes under this.
Executives’ salaries: Shareholders are very much interested in this since salary is a type of expense for a company.
A major change in the company’s goals: A change in the company’s goal can change the company’s position and market share. therefore it becomes important to have the reviews of all shareholders.
Dividend Payments: Whenever a company announces a dividend to its shareholders then figures of reserves and surplus in the balance sheet go down.
Stock Splits: No shareholder gets benefitted by stock split but companies do it so that their shares have high liquidity and people can easily afford stocks.

Section 47 of the Companies Act 2013 addresses the voting rights of a company’s shareholders.

Understand the methods of voting

Voting in a corporation can be done in four ways: by showing hands, by postal ballot, by electronic means, and by polling.

Voting by showing hands- During the company’s annual meeting, votes can be decided by showing hands. This will give each investor one vote, regardless of the number of shares he owns (Section 107).

Voting by the poll – A poll may be requested by members if the number of the members present and voting represents at least one-tenth of the total voting power or a shareholding of at least five lakh rupees (Section 109).

Electronic voting- Every publicly-traded company with more than 1000 shareholders is required to provide its shareholders with the option of voting electronically (Section 108).

Voting by postal ballot- Every publicly-traded company must provide shareholders who do not have access to e-voting with the option of voting by postal ballot (Section 110).

Post Voting

Shareholders have the most impact on most large companies since they are going to elect director. In the company, top executives and officers own most of the shares in small and private companies.

Now have common sense, if top executives and officers are holding majority shares.

Now Retail investors are left with minority shares and they can’t deny the director. It is also possible for a single person to own a majority of the company’s stock.

Shareholders do vote in AGM but their voting activity has less impact on the major issues. In the end board of directors have to take the decisions.