Role of Shareholders & Other Stakeholders in Corporate Governance

6th May 2021 1 By indiafreenotes

A shareholder can be a person, company, or organization that holds stocks in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner. Shareholders typically receive declared dividends if the company does well and succeeds.

Also called a stockholder, they have the right to vote on certain matters with regard to the company and to be elected to a seat on the board of directors.

If the company is getting liquidated and its assets are sold, the shareholder may receive a portion of that money, provided that the creditors have already been paid. When such a situation arises, the advantage of being a stockholder lies in the fact that they are not obliged to shoulder the debts and financial obligations incurred by the company, which means creditors cannot compel stockholders to pay them.

Roles of a Shareholder

Being a shareholder isn’t all just about receiving profits, as it also includes other responsibilities. Let’s look at some of these responsibilities.

  • Brainstorming and deciding the powers they will bestow upon the company’s directors, including appointing and removing them from office
  • Deciding on how much the directors receive for their salary. The practice is very tricky because stockholders must make sure that the amount they will give will compensate for the expenses and cost of living in the city where the director lives, without compromising the company’s coffers.
  • Making decisions on instances the directors have no power over, including making changes to the company’s constitution
  • Checking and making approvals of the financial statements of the company

The shareholders are the owners of the company and provide financial backing in return for potential dividends over the lifetime of the company. A person or corporation can become a shareholder of a company in three ways:

  • By subscribing to the memorandum of the company during incorporation
  • By investing in return for new shares in the company
  • By obtaining shares from an existing shareholder by purchase, by gift or by will

The Role of Stakeholders in Corporate Governance

The rights of shareholders, investors and all other stakeholders that are established by law or through mutual agreements are to be respected.

Performance-enhancing mechanisms for employee participation shall be permitted to develop.

Where stakeholders participate in the corporate governance process, the Company shall ensure them access to relevant, sufficient and reliable information on a timely and regular basis, as by law and Company’s governing documents.

Shareholders, employees and all other stakeholders shall be able to freely communicate their concerns about illegal or unethical practices to the Management Board, and their rights shall not be compromised for doing this.

The corporate governance framework the Company shall complement by an effective, efficient insolvency framework and by effective enforcement of creditor rights