Voting rights, Right issues

Company law provides for various rights to shareholders of a company. These include the right to vote on certain matters and the right to subscribe to new shares through right issues.

Voting Rights

Voting rights are the rights of shareholders to vote on certain matters relating to the company. These matters include the election of directors, approval of the annual accounts, and the approval of major corporate transactions. The voting rights of shareholders are usually proportionate to their shareholding in the company. For example, a shareholder holding 10% of the shares of a company will have 10% of the voting rights.

Voting rights can be exercised in person or by proxy. In the case of a proxy, the shareholder appoints someone else to vote on their behalf. The proxy may be another shareholder or a person appointed by the shareholder for this purpose.

Voting rights are usually exercised at the general meetings of the company. There are two types of general meetings – the annual general meeting (AGM) and the extraordinary general meeting (EGM). The AGM is held once a year and is mandatory for all companies. The EGM, on the other hand, can be called at any time by the board of directors or by shareholders holding a certain percentage of the shares of the company.

There are certain restrictions on the exercise of voting rights. For example, a shareholder cannot vote on a matter in which they have a personal interest. Similarly, a shareholder cannot vote on a matter if they have a conflict of interest. In such cases, the shareholder is required to disclose the nature of the interest or conflict and abstain from voting.

The Companies Act, 2013 mandates the principle of “one share, one vote”, which means that every shareholder of a company is entitled to one vote for each share held by them. This ensures that every shareholder has an equal say in the decision-making process of the company.

Voting by Proxy:

The Act allows shareholders to vote by proxy. A shareholder can appoint another person to vote on their behalf at a general meeting of the company. The proxy holder should be a member of the company and should not hold more than 50 proxies.

Electronic Voting:

The Act also provides for electronic voting for shareholders who are unable to attend the general meeting in person. Shareholders can vote on resolutions by electronic means, provided that the company has made arrangements for such voting.

Special Resolutions:

Certain decisions of the company require a special resolution, which requires the support of at least 75% of the shareholders present and voting at the general meeting. Examples of such decisions include amending the articles of association, issuing shares with differential voting rights, etc.

Related Party Transactions:

The Act requires that any related party transaction should be approved by the shareholders of the company. A related party transaction is a transaction between the company and its directors, key managerial personnel, or their relatives.

Appointing Independent Directors:

The Act mandates that certain companies should have independent directors on their board. Independent directors are appointed by the shareholders and are not related to the company in any way. They are expected to provide an objective view on the decision-making process of the company.

Right Issues

A right issue is a method by which a company raises capital by offering new shares to its existing shareholders. The existing shareholders are given the right to subscribe to the new shares in proportion to their existing shareholding. For example, if a shareholder holds 10% of the shares of a company, they will be given the right to subscribe to 10% of the new shares.

Right issues are usually made at a discount to the market price of the shares. This is done to encourage existing shareholders to subscribe to the new shares. The discount is usually determined by the board of directors and is subject to approval by the shareholders at a general meeting.

The purpose of a right issue is to raise capital for the company. The proceeds of the issue can be used for various purposes, such as financing the expansion of the company, repaying debt, or funding acquisitions.

Exceptions to the Right Issue

There are certain exceptions to the right issue. For example, a company may issue shares to a person who is not an existing shareholder if the issue is necessary for the purpose of:

• Conversion of debentures or loans into shares
• Meeting the obligations of the company under employee stock option plans
• Meeting the obligations of the company under a special resolution passed by the shareholders.

Right issues types

There are two types of right issues that can be made by a company – renounceable and non-renounceable.

Renounceable Right Issue

A renounceable right issue is one in which the existing shareholder can sell their right to subscribe to the new shares to another person. This means that the shareholder has the option to either subscribe to the new shares themselves or to sell their right to someone else. The person who buys the right can then subscribe to the new shares in place of the original shareholder.

Renounceable right issues are beneficial for shareholders who do not have the financial resources to subscribe to the new shares themselves. They can sell their right to someone else and receive cash in return.

Non-renounceable Right Issue

A non-renounceable right issue is one in which the existing shareholder cannot sell their right to subscribe to the new shares to another person. This means that the shareholder must either subscribe to the new shares themselves or forfeit their right to do so. The new shares cannot be transferred to another person.

Non-renounceable right issues are beneficial for companies because they ensure that the new shares are subscribed to by the existing shareholders. This provides a degree of certainty to the company in terms of the amount of capital that will be raised through the issue.