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Role of Shareholders - Essay Example

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Role of Shareholders Shareholders are the owners of a firm in proportion to the percentage of shares they hold in the firm. These can be institutional investors, founders of the firm, corporate investors, government investors and individual investors. As partial owners of the firm, they have right over the firm’s profits but also have to suffer losses when the firm experiences financial failures…
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Download file to see previous pages However, state laws and company bylaws determine the areas in which shareholders are entitled to vote Shareholder powers One of the main areas where shareholders are generally entitled to use their power is the election of the board members who are the “agents” of the corporation. The board of directors “acts on behalf of the shareholders” and is responsible for the maximization of shareholder value by incorporating appropriate policies through the managers they select for corporate operations (Reference for Business 2012). Any fundamental change which the organization plans to incorporate needs to be approved by the shareholders before implementation (Miller 2012). This implies that they have the power to approve a merger, change or amend the articles of incorporation of a firm, affect the sale of all or part of the company’s assets or even approve the dissolution of the corporation (Ronen and Yaari 2007). However, in many of such decisions prior board approval is required. They not only have the power to choose the members of the board of Directors but also to vote against them if found to be inefficient and remove them from the board. Generally a director is removed if there is sufficient cause for voting him out. However, certain state statutes and corporate articles allow their removal without any cause (Miller 2012). This means that if majority of shareholders feel that a particular director is not required, they can vote him /her out of office without giving any justification for their action. Shareholders can impact a company policy by proposing their own ideas for shareholder vote. However, for this they need to present their idea to the board of directors and ask them to distribute it to all the shareholders before the shareholder meeting by including it in the proxy papers sent to them (Miller 2012). However, this power is limited by the fact that SEC (Securities and Exchange Commission) has set a limit to who can forward these proposals. As per SEC, only those shareholders who have stocks worth at least $1000 can submit such proposals (Miller 2012). This submission is also limited by the fact that the proposal should be related to some noteworthy policy concern and not any ordination day to day operational consideration (Ronen and Yaari 2007). Thus, we can see that though the shareholders have the powers to affect change, they are limited in their use of power. In general, each shareholder has voting rights in proportion to the number of shares held by him/ her. However, the company can limit the voting rights of certain categories of shareholders (Miller 2012). For example, most organizations do not give voting rights to preferred shareholders. The companies can do this by incorporating the same in the articles of incorporation. However, if the laws of the State of operation do not allow such provisions, then the organization has to abide by the law. Some times preemptive rights are granted to shareholders. This gives them the right to subscribe to the “same percentage of new shares being issued as they already hold in the company” (Miller 2012). This helps them to maintain their “proportionate control” over the organization in terms of voting power and financial interest (Miller 2012). The implication of this right is significant when the organizati ...Download file to see next pagesRead More
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