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Shareholders FAQ

Find out about shareholder rights and duties

Shareholders FAQ

What are the main general legal rights and duties of shareholders?

Shareholders in a company have a number of rights under the law. These are:

the right to transfer their shares (subject to any restrictions in a company's articles of association)

the right to attend and vote at company meetings

the right to dividends (dependent on a company's profits)

the right to a copy of the company's accounts or, at least, a summary financial statement

A shareholder has a duty to pay for shares when asked.

Shareholders have the additional right to vote on directors’ salaries. As a new requirement under the Companies Act 1985, companies must produce a "directors' remuneration report" (detailing the grounds for directors' pay and how it is linked to company performance) each year on which shareholders can vote - the vote will not require shareholders to specify directors' remuneration, but will allow them to express views on the remuneration report.

What are pre-emption rights for shareholders?

Pre-emption rights are the rights of existing members to be offered new shares on beneficial terms by that company. The right was introduced to stop existing shareholders having the value of their share holdings diluted by the new shares being issued.

Pre-emption rights do not apply to employee share schemes, nor to allotments that are issued as wholly or partly paid-up for a non-cash payment. Also, a private company's memorandum or articles may exclude pre-emption rights (but not a public company's).

Under the Companies Act 1985 a company can pass a special resolution not to apply pre-emption rights, called a 'disapplication of pre-emption rights'. This applies to just one issue only, and a further resolution is needed if similar conditions are to apply to another share issue. A copy of the special resolution must be delivered to Companies House within 15 days of being passed.

For further information see the Companies House web site

Relevant Online Forms

Forms are available from Companies House, some are also in Welsh.

What types of share can a company offer and what rights do they hold?

A company can offer different types of shares, each with different rights:

Ordinary shares give a shareholder no particular rights to share in the profits of a company. There is an entitlement to profits after other demands have been met, such as those of preference shareholders, but profits can be held in reserve by a company's directors.

Preference shares give a shareholder a preferential right to share in the profits of a company before any payments are made to ordinary shareholders. Some preference shares are cumulative, so that profits missed in one year are paid in a subsequent year.

Redeemable shares are shares a company can buy back from shareholders at some agreed date. A company must issue other types of share along with redeemable shares.

A company can change the rights of a class of shares, but cannot change non-redeemable shares into redeemable shares. A company must normally notify Companies House of any changes involving the rights attached to shares (see Companies House for further information).

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What is the London Stock Exchange?

The London Stock Exchange is the organisation which provides the principal markets for the issue of, and the buying and selling of, publicly quoted shares in the UK. It brings companies and investors together, provides rules to ensure the markets work efficiently and fairly, and monitors the operation of its markets to ensure that its rules are being obeyed. The Exchange also provides markets in corporate loan stocks, Government (gilt-edged) securities and international securities.

Companies whose shares are traded on the Exchange are known, in general, as 'quoted companies' and may be admitted to the main market of listed shares and securities or to the Alternative Investment Market (AIM). Stockbroking firms and other securities houses, if they are 'members' of the Exchange may trade directly in shares and securities on the Exchange, on behalf of their clients. The Exchange makes sure that its quoted companies and firms which are members comply with the Admission and Disclosure Standards or the Rules of the London Stock Exchange, as appropriate. The Admission and Disclosure Standards cover the issue of listed shares and securities, and companies' ongoing disclosure standards towards their shareholders.

The Rules of the London Stock Exchange cover the way shares are traded on the Exchange's markets by firms which are members. They also cover companies whose shares are traded on AIM. A booklet outlines the role of the Exchange and provides guidance on those issues which fall to the Exchange to regulate, and those which may be appropriate for consideration by other regulatory organisations. It details how to make a complaint to the Exchange, and how to take a complaint further should the Exchange's response be unsatisfactory.

Relevant Online Forms

See the Financial Services Authority and London Stock Exchange web sites for further information.

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