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Fri, April 12, 2024

Understanding Shareholders Rights and Remedies under Companies Act, 2006

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Majority shareholders are the investors who invest the major capital and enjoy a number of rights conferred to them being the direct controllers of the company while minority shareholders are those investors who may not get a chance to be involved in the management and administrative functions. For example: Anna and Shreya decide to start a tea stand business. Both Anna and Shreya contributed some money to get the business up and running, but Shreya puts in more money than Anna, so Shreya owns 60%, while Anna owns 40%. After a few months, the tea stand becomes popular and starts making a lot of money. Shreya suggests they use some of the profits to expand the business by opening a new stand in a different location. However, Anna is not sure about the idea because she thinks it might be too risky and that she would rather keep things the way they are. Since Shreya owns a majority of the business, she has the power to make decisions like this without Anna’s consent. As a minority shareholder, Anna does not have as much say in how the business is run but Anna still has a stake in the company and is entitled to a portion of the profits. In the given scenario, Shreya with 60% of the shareholding is the majority shareholder, while Anna with 40% shareholding is a minority shareholder.

Majority Shareholder and Minority Shareholder Rights as per shareholding percentage in a company

In Nepal, the Companies Act provides various rights to shareholders based on the percentage of their shareholding in a company. Even though the terms ‘majority’ and ‘minority’ shareholders are not explicitly defined in the law, the Act outlines the rights and privileges of shareholders according to the extent of their shareholding. For instance, a shareholder who holds 1% or more of the shares in a company with a paid-up capital of Rs 25 crores is considered a substantial shareholder. On the other hand, a shareholder who holds at least two-and-a-half percent of the shares in the paid-up capital of the company can file a case in court against any director, officer, or person having control over the company on behalf of the company. Furthermore, a shareholder with at least 5% of the paid-up capital of the company is also known as a substantial shareholder. Such shareholders have the right to petition the court against any amendment or alteration made to the objectives of the company. They can present any matter at the annual general meeting for discussion and decision, file a petition in court on behalf of the company and adopt written resolution, including a special resolution, in the general meeting of a private company. If a shareholder holds at least 10% of the shares of the paid-up capital of a company, they have the right to hold an extraordinary general meeting to make alterations in the rights attached to the shares of a particular class of shares. Similarly, a shareholder with 25% of the shareholding has the power to call an extraordinary general meeting of the company. Lastly, a shareholder with 75% of the shareholding can adopt a resolution, including a special resolution, by voting in favour of the resolution in the general meeting of a private company. They can also pass a resolution to distribute the remaining properties of the company to the shareholders while liquidating the company. It is essential for shareholders to be well-versed about their rights to ensure that their interests are protected. These rights provide shareholders with the ability to influence the company’s decisions and take appropriate action in case of any wrongdoing. Understanding these rights is crucial for shareholders to protect their interests and influence the decisions of the company.

Legal remedies available to shareholders in case of breach of their rights under Companies Act

In addition to the rights conferred upon shareholders by the Companies Act based on their percentage of shareholding, the Act also outlines legal remedies available to shareholders in case of breach of their rights. Some of the important legal remedies available to the shareholders include civil remedy, compensation, damage and losses and criminal remedy. In cases where negligent corporate behaviour harms shareholder rights or if there is any corporate criminal behaviour, shareholders are entitled to compensation based on the gravity of the situation. Furthermore, the Companies Act holds directors and officers of the company responsible for any loss or damage caused to the company with mala fide intention or malicious recklessness. Such individuals may be punished with a fine not exceeding Rs 50,000, imprisonment of a term not exceeding two years or both. Although, the Companies Act does not directly address corporate criminal liability of the company, it holds directors and other personnel accountable for their actions. It is important for shareholders to be aware of these legal remedies to protect their interest and take appropriate action if necessary.

Conclusion

In conclusion, the distinction between majority and minority shareholders is essential in determining the extent of their control and rights in a company. The Companies Act in Nepal provides various rights and privileges to shareholders based on their shareholding, which can significantly influence the decision-making process and protect their interests. Understanding these rights is crucial for shareholders to ensure that they are adequately protected and can take appropriate action in case of any wrongdoing. Shareholders should familiarise themselves with these rights to exercise their influence effectively and take legal actions if necessary. By doing so, they can contribute to the success of the company while safeguarding their own interests.
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MARCH 2024

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