Voting Rights of Shareholder in India

A shareholder has the right to vote on the corporate policy which might involve making or selecting the board of directors, initiating corporate actions and when making any substantial changes in the operations of a corporation.

The company is a legal entity that is different from it members that constitute it, however, this doesn't mean that they do not have any duty or right over it. The dispersal of control and ownership makes it important for shareholders to know their rights, privileges and liabilities of the shareholders.

Voting Rights of Equity Shareholder

Equity shareholders in a company are the main shareholder of the company but when the distribution of share is done the preference shareholder will be the first one to be distributed the dividend. Since the position of equity shareholder is not as secure as preference shareholder they have more voting rights.

The shareholder has the right to vote upon the questions of legal competency as they have a personal interest in the subject matter as opposed to any particular interest of the company.

Voting Rights of Preference Shareholder

Generally, the voting rights in a company are enjoyed by the equity shareholders only, what preference shareholder enjoy as voting right are limited. The reason behind such a divide is that preference shareholder is in a comparatively secure position to an equity shareholder.

Under certain condition, the preference shareholders also enjoy voting rights.

  • Any such situation where a resolution is being placed in the meeting that is directly affecting the rights of the preference shareholder.
  • If any such resolution is passed for winding up of the company or for repayment of the company or for reduction of the equity or preference share capital of the company.

The right of the preference shareholder is dependent on the amount of preference share the person holds in a company.

NOTE: The exception to such rule is wherein a private company the AOA and MOA prescribe as such.

Every member that is limited by share and hold any equity share capital have a right to vote in a company with respect to every resolution that is passed in the company.

Shareholders have three classes of right in any company in which they hold share contract. These are:

  • Right to vote in person or by proxy
  • Voting right for an election of directors, auditors, inspectors and any incidental right to participate in annual and extraordinary general meetings
  • Voting right for amending the Memorandum and Articles of Association

Process of Conducting Voting

Votes that are casted by the shareholder in any meeting play a decisive role in the proposed business. Voting in a general meeting can be convened in two different ways:

  1. By attending the General Meeting

The voting in the annual general meeting can be conducted through Show of Hands or by Poll if the voting has not been demanded to be conducted through an electronic medium. If the company faces no objection they can vote through a simple method of show of hands or by Poll that can be demanded by the shareholders that have shares worth Rs. five lakh or have 10% voting power.

  1. By Voting Electronically

Every listed company or companies that have more than 1000 shareholders need to include e-voting options for their shareholders as per the purview of companies act 2013.

NOTE: The companies have to also provide access to the voting through postal ballot as well.

Restriction on Voting Rights

The article of Association of any company can be used to place a certain restriction upon the voting rights of the shareholders. For instance, the article of association of many companies includes the restriction clause on the voting rights for which one-time sum which was liable to be paid was not paid by the shareholder.