ROLE OF

STOCKHOLDERS in
corporate governance
 INGREDIENTS TO OUR PRESENTATION
Meaning and Definitions
Types of Stockholders
Role of Shareholders (esp. retail shareholders)
Best Practices
Regulatory Reforms
Conclusion

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 Meaning of corporate governance

 The framework of rules and practices by which a board of

directors ensures accountability, fairness
and transparency in a company’s relationship with its
all stakeholders (financiers, customers, management, emp
-loyees, government, and the community).
 It is generally said that if management is about running
the business corporate governance is about seeing that it
is run properly.

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 Definitions of corporate governance

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 NARROW PERSPECTIVE

 In a narrow sense, corporate governance involves a set of

relationships amongst the company’s management, its
board of directors and its shareholders.

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 Mid-way

 “Corporate Governance is the system by which

companies are directed and controlled. Boards of
directors are responsible for the governance of their
companies. The shareholders role in governance is to
appoint the directors and the auditors and to satisfy
themselves that an appropriate governance structure is in
place.”

- Cadbury report (1992)

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 Broadest definition

“ Corporate governance involves a set of relationships

between a company’s management, its board, its
shareholders and other stakeholders. Corporate
governance also provides the structure through which the
objectives of the company are set, and the means of
attaining those objectives and monitoring performance
are determined.”
- OECD Principles of Corporate
Governance (1999)

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 Stakeholders
 A person, group or organization that
has interest or concern in an organization. Stakeholders
can affect or be affected by
the organization's actions, objectives and policies.

Stakeholders

Market
stakeholders Non – market
stakeholders

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 MARKET STAKEHOLDERS

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 NON- MARKET STAKEHOLDERS

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 Stockholders

 Stockholders are individuals, companies, or trusts, that

own shares of a corporation.
 A stockholder is also known as a shareholder.
 The stockholders have invested their money to purchase
these shares and they gain in two ways:-
 Through dividends paid on these shares due to the
corporation's profits.
 By selling their shares at a profit.

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 Stockholders

 Shareholders are the owners of a company and they have

a right to gain the profit if the company performs well,
but that comes with the potential to lose if the company
performs poorly.
 Shareholder has a right to vote on some matters of the
company such as vote for the directors nomination to the
board.
 In the event of the liquidation or sale of a business,
shareholders have residual rights to any remaining assets.

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 Types of shareholders

Individual Institutional
investors investors

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 Individual investors

 An individual investor is one who purchases securities

for his or her own personal account rather than for an
organization.
 They are also called as small investors or retail investors.
 Retail investors buy in much smaller quantities than
larger institutional investors. 
 India is No 1 in world where individuals directly own
stocks as per data taken from National Securities
Depository Limited.

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 Institutional investors

 Institutional investors are organizations which pool large

sums of money and invest those sums in securities, real
property and other investment assets.
 In India there are four types of institutional investors:-
 The development oriented financial institutions such as
IFCI, ICICI, IDBI etc.
 Insurance companies such as LIC, GIC.
 Banks.
 Mutual funds including UTI.

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 Example:- tcs

TCS

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ROLE OF SHAREHOLDERS
 Role of stockholders
 Stockholder (shareholders) are the owners of one or more
shares of stock in a corporation.
 The shareholders of a company are its financial supporters;
they provide finance to a company by purchasing shares in it,
and through this become shareholders.
 Shareholders are important to a business as they are a major
source of capital and their money is used to start a business
and help it to continue its operations. Aside from contributing
their money, shareholders have a stake in the company and
this causes them to contribute with creative and innovative
ideas that help the business to grow and increase its market
share in the industry it is involved in.

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 Rights of share holders
 The member of the company enjoys various rights in relation
to the company. These rights are conferred on the members of
the company either by the Indian companies act of 1956 or
by the memorandum and article of the association of the
company or by the general law, especially those relating to
contract under the Indian Contract Act, 1872.

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Some of the most important rights of the
shareholders as stressed by the above Acts
are following:
 He has a right to obtain copies of the memorandum of the
association , article of association and certain resolution and
agreement on request, on payment of prescribed fees.
 He has a right to have certificate of the share held by him
within the 3 months of the allotment.
 He has the right to transfer the share or other interest in the
company subject to the manner provided by the article of the
company.

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 He has a right to appeal the Company Law Board if the
company refuses or fails to register the transfer of shares.
 He has the preferential right to purchase shares on a pro rata
basis in case of a further issue of shares by the company.
Moreover he/she also has the right of renouncing all or any
of the shares in favour of any other person.
 He has the right to apply to the Company Law Board for the
rectification of the register of members.
 He has the right to appeal to the competent court to have any
variation to his rights set aside by the court.

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 He has the right to inspect the register and the index of
members, annual returns, register of charges and register of
investments without any charge. He can also take extracts
from any of them.
 He is entitled to receive notices of the general meeting and to
attend such meeting and vote either in person or by proxy.
 He is entitled to receive a copy of statuary report.
 He is entitled to receive copies of the annual reports of
directors, annual accounts and auditors’ report.

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 He has the right to participate in the appointment of auditors
and the election of Directors at the annual general meeting of
the company.
 He has a right to make an application to the Company Law
Board for calling annual general meeting, if the company
fails to call such a meeting within the prescribed time limits.
 He can require the directors to convene an extraordinary
general meeting by presenting a proper requisition as per the
provision of the act.
 He has a right to participate in declaration of dividend and
receive his dividend duly.

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 He can make an application to the Company Law Board for
convening an extraordinary meeting of the company where it
is impracticable to call such a meeting either by the directors
or by the members themselves.
 He is entitled to inspect and obtain the copies of the minutes
of proceeding of general meetings.
 He has a right to demand a poll.
 He has a right to apply to the company law board for
investigation of the affairs of the company.
 He has the right to remove a director before the expiry of the
term of his office.

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 He has a right to make an application to the Company Law
Board for relief in case of oppression and mis-management.
 He can make a petition to the high court for the winding up of
the company.
 He has a right to participate in passing of a special resolution
that the company be wound up by the court or voluntarily.
 He has a right to participate in the surplus assets of the
company. If any, on its winding up.

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Case:- Sahara Group
 Nov 24, 2010
 Some anonymous investors complained against Sahara Group
for fraudulent activities in issue of debentures, due to their
complaints Securities and Exchange Board of India (SEBI)
has asked Sahara Group not to mobilize funds from equity
markets and restrained Subrata Roy (group head) from
approaching public for raising money. Sahara group
challenged SEBI in High Court. High Court passed judgment
not to take any coercive step against Sahara Group. Then SEBI
approached Supreme Court .Supreme Court allowed Sahara
to raise funds but give rights to SEBI to have details of all
events.

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 For completing its investor protection duties, SEBI warned
investors not to invest in Sahara companies. Then Ministry
examined SEBI charges against Sahara. After all investigation,
SEBI asked Sahara to refund Rs 4,843 crore to investors.
 In December 2013, Supreme Court had barred Sahara Group
chief Subrata Roy from leaving the country and also restrained
it from selling any of its properties.

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 Duties of Shareholders
 The main duty of shareholders is to pass resolutions at
general meetings by voting through their shareholder capacity.
This duty is particularly important as it allows the
shareholders to exercise their ultimate control over the
company.
 Shareholders can vote in one of two ways: on a show of hands
or through a poll vote where each vote will be proportionate to
the amount of shares held by each shareholder. A show of
hands is usually the preferred method of voting that takes
place at general meetings.

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There are two resolutions that can be voted on
at a meeting:
 Ordinary Resolution-An ordinary resolution is passed by the
shareholders if a simple majority of the shareholders present at
the meeting vote in favour of the proposal. Therefore, more
than 50% of the votes cast will have to be in favour, usually
displayed through a show of hands.
 Special Resolution-For a special resolution to be passed, a
75% majority must vote in favour. A special resolution is only
required if it is stated in statute or it is in the company’s
articles, which suggest a special resolution would have to be
used for a particular vote rather than an ordinary resolution.

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 CII COMMITTE ON CORPORATE
GOVERNANCE,1996
 CII pioneered the concept of CG in India
 Desirable code of corporate governance for the Indian companies.
 It considered- protection of investors interest, promotion of
transparency, and disclosure of information.
 The code required the listed Co. To give information under-
Additional Shareholder’s Information.
 -High and low monthly averages of share prices in stock
exchanges
 Details on business segment up to 10% of turnover, giving shares
in sales revenue, review of operations, analysis of the market etc.

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 Kumar Mangalam Birla Committee (1999)
 In1999, Securities and Exchange Board of India (SEBI) had set up
a committee under Shri Kumar Mangalam Birla, to promote and
raise the standards of good corporate governance.
 Committee made 25 recommendation, 19 of them were mandatory
and its made comprehensive attempt to evolve a ‘Code of
Corporate Governance’.
 Measures to improve the standards of corporate governance in the
listed companies, in areas such as continuous disclosure of material
information, both financial and non-financial, manner and
frequency of such disclosures, responsibilities of independent and
outside directors;

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 Kumar Mangalam Birla Committee
 The committee had identified  -the Shareholders, the Board of Directors  and
 the Management  as the three key constituents of corporate governance and
attempted to identify in respect of each of these constituents, their roles and
responsibilities as also their rights in the context of good corporate
governance.
Responsibility of shareholders
 Demand any explanation on the annual report
 Involve in the appointment of the directors and auditors,
 In case of new appointment of the director- shareholder shall be given the
following information :
 A brief resume
 Expertise in specific functional area
 Name of the Co.
 In which the person also holds directorship and membership.
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 Narayana murthy committee,2003

 Primary focus on shareholder and investors

 Information regarding the appointment of new director and
reappointment of the director.
 Information of the quarterly results to be displayed on its
website
 A board committee to be formed to look into redressing of
shareholders and investors complaints.
 Expedite the process of share transfer.

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 Narayana murthy committee,2003
Postal ballot- to participate effectively in corporate democracy
and in decision making process.
Key issues-
 Alteration in memorandum of association
 Sale of whole or substantial shares
 Sale of substantial investment of the co
 Corporate restructuring
 Entering into new business
 Variation in rights attached to class of securities
 Matters relating to change in management

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