Shareholders, also known as stockholders, possess the equity of a business in the form of shares, and as such, they are the legal owners of the firm. They are entitled to participate in the profits connected with the company’s successes. When a business suffers a loss, on the other hand, the value of its stock drops, resulting in losses and a decrease in the value of its portfolio. Ordinary shareholders and preferred shareholders are the two most important categories of stockholders. In addition, preferred stockholders get a fixed amount of dividends.
In addition to a range of rights, shareholders have the power to vote at shareholder meetings to approve board members, dividend payments, and mergers. The capacity to vote at shareholder meetings is the most important of these rights. Aside from other rights, limited liability insurance covers everything. The company’s shareholders must carry out their responsibilities with integrity to preserve the checks and balances essential for its effective functioning. Shareholders, therefore, have a significant role in the running of a company. They enjoy various privileges, including the ability to select the company’s director, auditor, and other officers and voting rights and a voice in its bankruptcy. Every privilege carries a duty that the shareholder must carefully fulfill.
Duties of the Shareholder
Every right and duty, including the power to choose the company’s directors and auditors and the capacity to vote, transfer shares, and be eligible for dividends, is accompanied by a corresponding responsibility. The shareholder is accountable for maintaining the text of the law.
While a shareholder may not be directly engaged in the company’s day-to-day operations, their choices about its long-term objectives are critical to the organization. Therefore, shareholders play an essential role in the decision-making process regarding changes to the memorandum of incorporation, dividend declarations, and dissolution of a company. In addition, decisions on various shareholder resolutions are often taken at general meetings, which are held to determine the company’s performance and vote on numerous shareholder resolutions put forward. As a result, shareholders have a significant influence on how a company’s activities are carried out. There are additional obligations and duties that shareholders have that they should fulfill as well. Aside from the many privileges that individuals have, they also have several responsibilities. They are as follows:
Shareholders must attend general meetings to keep accurate records of the company’s activities and offer timely input on current issues.
Shareholders have a responsibility to maintain financial records for the business.
Shareholders must maintain track of the company’s progress by frequently interacting with its other members, as described above.
Limited Liability of the Shareholders
Limited liability is a legal condition in which a person’s financial obligation confines to a particular amount, generally the amount of their invested capital. Similarly, the liability of the shareholders in the corporation is limited. Thus, a shareholder in a company is not personally accountable for any of the company’s debts, not including in the company’s capital and any unpaid amount on the company’s shares.
Although well-established laws rules that the liability of the shareholders is limited, they may still be held liable wherein:
The liability of the shareholders may stand unlimited for their actions.
For example, small businesses will have directors as shareholders, and they have to affirm the personal guarantee over the debts who lend to the company.
Shareholders who simultaneously serve as employees conduct fraud or mismanagement.
Partially paid shares
The concept of limited liability has many authoritative justifications attached to it affirmed by the separate legal entity of the corporations encouraging entrepreneurship Thus, supporting economic development and beneficial purpose.
Piercing the Corporate Veil
In general, a corporation is a separate legal entity. As a distinct legal entity, the business is solely responsible for its obligations and credit. As mentioned before, shareholder responsibility is restricted, although certain exceptional instances allow for breaching the corporate veil. Thus, the “corporate veil” limits shareholder responsibility.
Piercing or removing the corporate veil allows shareholders to regard a corporation’s rights and duties as their own. As a result, lifting the corporate veil is the most contested issue in US corporate law.
In the US landmark corporate case Kinney Shoe Corp v. Polan, 939 F.2d 209 (4th Cir. 1991) concerning the Piercing the corporate veil, the Fourth Circuit Federal Court of Appeals stated that lifting of the corporate veil could occur if:
The company lacked adequate capital to pay its future obligations.
lack of adherence to company processes (e.g., meetings and minutes); or
For the benefit of other benefits, members exploited the existing corporation.