CONCEPT OF SHAREHOLDERS: A CRITICLE STUDY

A final research proposal submitted in partial fulfilment of the course

Company Law I, Semester — VII during the Academic Year 2019
-2020.
Submitted by
Raju, 1637
BBA.LLB

Submitted to M/s Nandita S. Jha

September ,2019

Chanakya National Law

University, Nyaya Nagar,

Mithapur

800001, Patna

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 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.B.A. LL.B (Hons.) Project Report entitle
“CONCEPT OF SHAREHOLDERS: A CRITICLE STUDY” submitted at Chanakya
National Law University, Patna
is an authentic record of my work carried out under the supervision of

M/s Nandita S. Jha. I have not submitted this work elsewhere for any other
degree or diploma. I am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

RAJU
Chanakya National Law University, Patna

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 ACKNOWLEDGEMENT

I am very thankful to everyone who has supported me, for I have completed my
project effectively and moreover on time. I am equally grateful to M/s Nandita S. Jha.
He gave me moral support and guided me in different matters regarding this topic. He
has been very kind and patient while suggesting me the outlines of this project and
correcting my doubts I thank him for his overall support.

Last but not the least, I would like to thank everyone who helped me in gathering
different information, collecting data and guiding me. I also thank my friends who
were there with their suggestions and comments for my project.

RAJU

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 Table of contents
DECLARATION BY THE CANDIDATE...................................................................2
ACKNOWLEDGEMENT............................................................................................3
Objective of the Study :...........................................................................................5
Research Methodology:..............................................................................................5
Source of data...........................................................................................................5
Scope of study...........................................................................................................5
Chapter-1 Introduction..................................................................................................6
Definition.................................................................................................................. 6
Difference between Shareholder and stakeholder.....................................................7
Chapter-2 Difference between members and shareholders............................................8
Chapter-3 Types of shareholder....................................................................................9
Chapter-4 Function, Rights & Duties of shareholder..................................................11
Chapter-5 Conclusion..................................................................................................15
Bibliography...............................................................................................................16

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Objective of the Study :
1. To understand the basic concepts of shareholders under companies act, 2013.
2. To know the laws given under companies act, 2013 about the right and duties
of shareholders.
3. To trace different types of shareholders.

Research Methodology:
The researcher has adopted doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the
internet sources.

Source of data

The following are source of data:-

 Books
 Website
 Newspapers

Scope of study

The project deals with ‘CONCEPT OF SHAREHOLDERS.’ It informs the readers

about nature and concept of shareholders given under companies act, 2013 . It also
provide information about the types , rights and function of a shareholders. It also
provide difference between shareholders and stakeholders and members.

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 Chapter-1
Introduction

A shareholder, commonly also referred to as a stockholder, is a person, company, or

institution that owns at least one share of a company’s stock, which is known as
equity. Because shareholders are essentially owners in a company, they reap the
benefits of a business’ success. These rewards come in the form of increased stock
valuations, or as financial profits distributed as dividends. Conversely, when a
company loses money, the share price invariably drops, which can cause shareholders
to lose money, or suffer declines in their portfolios’ values.1

Definition
The term shareholder is not define in the companies act, 2013. So we have to look to
the different dictionary for its definition.
According to Cambridge Dictionary, a shareholder is
a person who owns shares in a company and therefore gets part of the company's
profits and the right to vote on how the company is controlled.
The same dictionary provides its definition in Business English as shareholder is a
person or organization that owns shares in a company2.
According to Collins dictionary,
A shareholder is a person who owns shares in a company.3
The corporate finance institute define shareholder in following terms: -
A shareholder can be a person, company, or organization that holds stock(s) in a given
company. A shareholder must own a minimum of one share in a company’s stock or
mutual fund to make them a partial owner. Shareholders typically receive declared
dividends if the company does well and succeeds.
Also called a stockholder, they have the right to vote on certain matters with regard to
the company and to be elected to a seat on the board of directors.4
So, after going all the definitions the basic definition of shareholder is that a
shareholder is a person who owns or hold share in a company. Some dictionary also

1
https://www.investopedia.com/terms/s/shareholder.asp
2
https://dictionary.cambridge.org/dictionary/english/shareholder
3
https://www.collinsdictionary.com/dictionary/english/shareholder
4
https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/

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elaborates some right, characteristics, etc. of shareholder. The term share is defined in
the companies act, 2013 under section-2(84). According to which, ―share means a
share in the share capital of a company and includes stock. 5 So, share is a portion of
share capital. The term share capital is not defined companies act,2013 but the term
authorized share capital is defined in the act under section 2(8). According to which,
authorized capital or ―nominal capital means such capital as is authorized by the
memorandum of a company to be the maximum amount of share capital of the
company.6

Difference between Shareholder and stakeholder

A shareholder can be an individual, company, or institution that owns at least one
share of a company and therefore has a financial interest in its profitability. For
example, a shareholder might be an individual investor who is hoping the stock price
will increase because it is part of their retirement portfolio. Shareholders have the
right to exercise a vote and to affect the management of a company. Shareholders are
owners of the company, but they are not liable for the company’s debts.
Whereas Stakeholders can be:

 owners and shareholders

 employees of the company
 bondholders who own company-issued debt
 customers who may rely on the company to provide a particular good or
service
 suppliers and vendors who may rely on the company to provide a consistent
revenue stream
Although shareholders may be the largest type of stakeholders, because shareholders
are affected directly by a company's performance, it has become more commonplace
for additional groups to also be considered stakeholders.
The key difference is a shareholder can sell their stock and buy different stock; they
do not have a long-term need for the company. Stakeholders, however, are bound to
the company for a longer term and for reasons of greater need.
So, shareholders are always stakeholders in a corporation, but stakeholders are not
always shareholders. A shareholder owns part of a public company through shares of
stock, while a stakeholder has an interest in the performance of a company for reasons
other than stock performance or appreciation. These reasons often mean that the
stakeholder has a greater need for the company to succeed over a longer term.
5
Section-2(84) of companies act,2013.
6
Section -2(8) fo companies act, 2013

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 Chapter-2
Difference between members and shareholders

The terms shareholders and members are commonly used as synonyms, as one can
become a member of the company, except by way of holding shares. In this way, a
member is a shareholder and a shareholder is a member. The statement is true but not
completely, as it is subject to certain exceptions, i.e. a person can become the holder
of shares through transfer, but is not a member, until the transfer is entered in the
register of members. In the same way, the transferor of shares lacks shareholding but
continues as a member, until entries are made in the company’s books regarding the
transfer. 7Likewise, there are a few more points of difference between member and
shareholder which are discussed below.
The term member is defined under section 2(55) of companies act, 2013. According to
which ― member, in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall be deemed to
have agreed to become member of the company, and on its registration,
shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the
company and whose name is entered in the register of members of the
company;
(iii) every person holding shares of the company and whose name is entered as a
beneficial owner in the records of a depository;
so, a person whose name is entered in the register of members of a company, is the
registered member of the company. The register includes every single detail about the
member like name, address, occupation, date of becoming a member, etc. It also
includes every person who holds company’s shares and whose name is entered as the
beneficial owners in depository records. Whereas a shareholder is a person who owns
or holds share in the company is shareholder. The shareholders are the owners of the
company, i.e. to the extent of the share capital held by them.
The following are the key differences between members and shareholders:

 A member is a person who subscribed the memorandum of the company. A

shareholder is a person who owns the shares of the company.

7
https://keydifferences.com/difference-between-members-and-shareholders.html

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  The term member is defined under section 2 (27) of the Indian Companies Act,
1956. Conversely, the term shareholder is not defined in the Indian Companies
Act, 1956.
 The bearer of a share warrant is not a member, but the bearer of a share warrant
can be a shareholder.
 All shareholders whose name are entered in the register of members are the
members. On the other hand, all members may not be the shareholders.
 In the case of a public company, there must be a minimum of 7 members.
There is no such cap on the maximum number of members. Similarly, a private
company can have a minimum of 2 and maximum of 200 members. As
opposed to shareholders, there is no minimum or maximum limit, in the case of
a public company.

Chapter-3
Types of shareholder

There are basically two type of shareholder. They are: -

 Individual shareholder
 Institutional shareholder
Individual shareholder consists of natural person whereas Institutional shareholder
consists of a body corporate, LIC, a bank, etc. Institutional shareholders represented
by their representative.
Types of shareholders based on type of authorised share capital they hold. Accourding
to section 43 of companies act, 2013 there are two type of authorised share capital.
They are: -

 Equity share capital

 Preference share capital
Equity share capital is also known as equity share and preference share capital is also
known as preference share. The shareholder who hold equity share is known as equity

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shareholder and the person who holds preference share is known as preference
shareholder. So on this basis there are two type of shareholder. They are: -

 Equity shareholder
 Preference shareholder
Equity shareholder
Accourding to section 43 of companies act, equity share capital comes with—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting or otherwise in accordance with
such rules as may be prescribed.
So, equity shareholder are of two kinds equity shareholder with voting rights and with
differential voting rights. They are also known as residual claimant. The life time of
equity shareholder is for entire life of the company unless the shareholder itself
voluntarily exist or transfer the share.
Preference shareholder
According to section 43 of companies act, 2013, the preference share comes with –
(i) fixed dividend
(ii) fixed rate of interest of dividend
the explanation to section also provide certain preferential right over equity
shareholder in respect of :-
a. payment of dividend, either as a fixed amount or an amount calculated at
a fixed rate, which may either be free of or subject to income-tax; and
b. repayment, in the case of a winding up or repayment of capital, of the
amount of the share capital paid-up or deemed to have been paid-up,
whether or not, there is a preferential right to the payment of any fixed
premium or premium on any fixed scale, specified in the memorandum
or articles of the company;
The preference shareholder time period is 20 years with an exception in the case of
infrastructure company it is 30 years.
The preference share is non-convertible in nature unless otherwise mention. It is
participatory in nature with respect of dividend unless otherwise specifically mention.
It is cumulative in nature unless other wise mention. And every preference share is
redeemable in nature after 2013 act as there is no issuing of non-redeemable
preference share. So as these are the characteristics of preference share so as the
characteristics of the preference shareholders.

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 Chapter-4
Function, Rights & Duties of shareholder

There are basically two function of shareholders. They are: -

 Supply of Capital by purchasing share.

 To install governance mechanisms
Right of shareholders
Right of shareholder under companies’ act can be divided into two categories. They
are:-

 Individual membership rights

 Corporate membership rights

Source of right of shareholders are: -

 Statute
 Memorandum of association & Articles of Association
 Common law rights attached to a share like voting rights, transfer right, etc.

Individual Membership rights

It is those right when a company and a shareholder come into contact.
1. Right to receive notice, attend & call meeting
Under section 101 of companies act,2013 a shareholder has right to receive a notice of
meeting of not less than clear twenty-one days either in writing or through electronic
mode in such manner as may be prescribed with a proviso that a general meeting may
be called after giving a shorter notice if consent is given in writing or by electronic
mode by not less than ninety-five per cent. of the members entitled to vote at such
meeting. The notice contains the place, date, day and the hour of the meeting and shall
contain a statement of the business to be transacted at such meeting.
Under section 96 every shareholder has right to attend Annual General Meeting which
Every company other than a One Person Company shall in each year hold in addition
to any other meetings, a general meeting as its annual general meeting and shall
specify the meeting as such in the notices calling it, and not more than fifteen months

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shall elapse between the date of one annual general meeting of a company and that of
the next.8
Under section 100 of companies act, 2013, every shareholder has right to call a
extraordinary general meeting. It can be called by board, board on requisition by
shareholders, shareholders; if the board defaults.
2. voting rights
Section 47 of companies’ act provides voting rights to shareholders. According to
which, every member of a company limited by shares and holding equity share capital
therein, shall have a right to vote on every resolution placed before the company; and
his voting right on a poll shall be in proportion to his share in the paid-up equity share
capital of the company.
Every member of a company limited by shares and holding any preference share
capital therein shall, in respect of such capital, have a right to vote only on resolutions
placed before the company which directly affect the rights attached to his preference
shares and, any resolution for the winding up of the company or for the repayment or
reduction of its equity or preference share capital and his voting right on a poll shall
be in proportion to his share in the paid-up preference share capital of the company:
Provided that the proportion of the voting rights of equity shareholders to the voting
rights of the preference shareholders shall be in the same proportion as the paid-up
capital in respect of the equity shares bears to the paid-up capital in respect of the
preference shares:
Provided further that where the dividend in respect of a class of preference shares has
not been paid for a period of two years or more, such class of preference shareholders
shall have a right to vote on all the resolutions placed before the company. 9
3. Right of shareholder by show off hands
At any general meeting, a resolution put to the vote of the meeting shall, unless a poll
is demanded under section 109 or the voting is carried out electronically, be decided
on a show of hands.10
4. Right to appoint proxy
Any member of a company entitled to attend and vote at a meeting of the company
shall be entitled to appoint another person as a proxy to attend and vote at the meeting
on his behalf. It has a restriction that a proxy shall not have the right to speak at such
meeting and shall not be entitled to vote except on a poll. 11 One person can make
8
Section- 96 of companies act,2013
9
Section -47 of companies act, 2013
10
Section – 107 of companies act, 2013
11
Section -105 of companies act,2013

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proxy for 50 persons in no(s) but it should not exceed 10 percent of total paid up
capital.
5. Right of member to receive a share certificate under section -46 of the companies
act.
6. Right to get a copy of memorandum of association, minutes of meeting, articles of
association under section – 17 of companies act, 2013.
7. Right to transfer of share 12
Every share holder have a right to transfer of share in case of public company but in
case of private company if the restriction is given in Article of association then there
must be restriction according to provision of Article of association.
8. Right to inspection which is given under various section related to different things.
Section – 94(3) talks about inspection of document and statutory report. Section- 119
talks about inspection of minutes of meetings, section – 171 talks about inspection of
register of directors & key managerial prospectus.

Corporate membership rights

Corporate membership rights exercise only in class, groups and it is always in the
interest of the company and exercises only through derivative action like filling a
plaint, etc. The member derive power from Article of association and Memorandum of
association.
It is exercises for following purpose: -
 Section 5(3)- alteration in Article of association
 Section 12(5)- shifting of registered office.
 Section 13(11)- alteration of memorandum of association
 Section 13(8)- alteration of object clause.
 Section 27(1)- alteration to the terms of contract
 Section 48(1)- variation of voting rights, etc.
Rights of minority descent shareholder which is given under section 244, Right to
apply under section 241 which talks about act of oppression or mismanagement also
comes under corporate membership rights.

12
Section- 56 of the companies act,2013

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Appointment of directors
Shareholders play an important role in the appointment of directors. An ordinary
resolution is required to be passed by the shareholders for the appointment. Apart
from this, shareholders can also appoint various types of directors. They are:

 An additional director who will hold the office until the next general body
meeting;
 An alternate director who will act as an alternate director for a period of 3
months;
 A nominee director;
 Director appointed in the case of a casual vacancy in the office of any director
appointed in a general meeting in a public company.13

Shareholders’ Duties
There are also responsibilities and duties of shareholders which they should perform.
Besides several rights which they have, there exists several duties. They are:

 Shareholders should participate in the general body meetings so that they can
see and also can advise on the matters which they feel is not going good.
 Shareholders should consult on the matters of finance and other topics.
 Shareholders should be in touch with other members of the company so that
they can see the work progress of the company.

13
https://blog.ipleaders.in/shareholders-rights-duties/

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 Chapter-5
Conclusion

A shareholder is a person who owns shares in a company and therefore gets part of the
company's profits and the right to vote on how the company is controlled. It is
different from stakeholders although in common sense both speaks as a synonym. As
a Stakeholders can be owners and shareholders, employees of the company,
bondholders who own company-issued debt, customers who may rely on the company
to provide a particular good or service, suppliers and vendors who may rely on the
company to provide a consistent revenue stream. So, stakeholders are a larger term
which consist shareholders. The same case is with the members and shareholders.
Members define under section 2(55) of companies act, 2013, according to which
shareholders is a part of members. All shareholders whose name are entered in the
register of members are the members. On the other hand, all members may not be the
shareholders.
There are two types of shareholders, Individual shareholder consists of natural person
and Institutional shareholder consists of a body corporate, LIC, a bank, etc.
Institutional shareholders represented by their representative. If we go through the
type authorised share capital shareholders can be divided in two different categories,
Equity shareholder and Preference shareholder. Both have different characteristics
according to share they hold like equity shareholders have voting rights whereas
preference shareholders have preference over equity when it comes to division of
dividends.
There are basically two function of shareholders. Supply of Capital by purchasing
share and to install governance mechanisms. Right of shareholder under companies’
act can be broadly divided into two categories, Individual membership rights and
corporate membership rights. The Individual membership rights have many rights like
right to vote in meeting, right to call, attend and get notice of a meeting given under
section 96, 100 and 101 of companies act,2013 respectively. Various others rights are
given to shareholders which are discussed earlier. There are certain duties of
shareholders like appointment of directors to run the company, to participate in the
general body meetings so that they can see and also can advise on the matters which
they feel is not going good, etc.
So, a shareholder are essentially owners in a company, they reap the benefits of a
business’ success. These rewards come in the form of increased stock valuations, or as
financial profits distributed as dividends. Conversely, when a company loses money,

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the share price invariably drops, which can cause shareholders to lose money, or
suffer declines in their portfolios’ values.

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 Bibliography

Statutes
 THE COMPANIES ACT, 2013

Books
 Simon Goulding, company law, 2nd edition, published by Cavendish Publishing
Limited.
 EXECUTIVE PROGRAMME , COMPANY LAW, published by THE
INSTITUTE OF COMPANY SECRETARIES OF INDIA.

Journals and Articles

 What is Shareholder Value? Definition of Shareholder Value, Shareholder
Value Meaning - The Economic Times. (2019). The Economic Times.
Retrieved 7 September 2019, from
https://economictimes.indiatimes.com/definition/shareholder-value
 Shareholder - Definition, Roles, and Types of Shareholders. (2019). Corporate
Finance Institute. Retrieved 7 September 2019, from
https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/

Sites
 www.investopedia.com
 www.dictionary.cambridge.org
 www.collinsdictionary.com
 www.corporatefinanceinstitute.com
 www. blog.ipleaders.in
 www. keydifferences.com
 www. Economictimes.com

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