Keith Mack
Shareholders in New Zealand have a number of rights and some control over the company. While they typically don't have a role in the day-to-day management of the company, they can vote on critical company matters, such as the appointment or removal of directors, and can challenge management if they feel it is appropriate. Shareholders can also pass a resolution on management decisions if enough of them feel strongly about a particular issue. This raises the question: in New Zealand, to what extent can shareholders change a company's management?
| Characteristics | Values |
|---|---|
| Shareholders' rights | Voting rights, the ability to influence governance, entitlement to dividends, and a share of the company's remaining value or cash if it goes into liquidation |
| Shareholders' liabilities | Responsible for any amounts unpaid for acquiring their shares |
| Shareholders' powers | Adopting, altering or revoking a constitution, altering shareholder rights, approving a major financial transaction, appointing and removing directors, approving an amalgamation, and putting the company into liquidation |
| Shareholders' role in management | Shareholders do not have a role in the day-to-day management and strategic planning of the company, except in small, closely held companies where directors and shareholders may be the same person |
| Becoming a shareholder | A company issuing new shares, a current shareholder transferring their shares, or buying shares in a publicly traded company |
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What You'll Learn
Shareholders' voting rights
Shareholders can enforce their rights through court action, including applying for an order to restrain the company from acting contrary to its constitution or the Companies Act, directing the company to take required action, suing for breach of duty, seeking an order for unfair treatment, and requesting an inspection of company records.
The Companies Act 1993 restricts shareholder power to annual and special meetings, or resolutions in place of meetings. Shareholders can pass resolutions at these meetings, which may include decisions requiring unanimous assent. The chairperson of a shareholders' meeting must allow shareholders a reasonable opportunity to question, discuss, and comment on the company's management. Shareholders can also pass resolutions relating to management, but these are not binding on the board unless provided for in the company's constitution.
The shareholder agreement is a legally binding document that outlines the company's governance and decision-making processes. It sets out the ownership percentage of each shareholder and their voting rights. This agreement is essential, as it underpins and explains the company's ownership structure.
Shareholders have the power to appoint and remove directors, usually done by an ordinary shareholders' resolution (a simple majority vote). Other powers include adopting, altering, or revoking the constitution, altering shareholder rights, approving major financial transactions, amalgamations, and putting the company into liquidation. These powers typically require a shareholders' resolution passed by a majority of 75% or higher, depending on the company's constitution.
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Shareholders' liability
In New Zealand, limited liability companies are the most common type of company structure. This structure limits the personal risk incurred by shareholders when running a business. As such, the company is responsible for its own liabilities, and shareholders do not take on any company debts personally. Their personal assets are protected, and creditors cannot take action against them. The only liability for shareholders is for any amounts unpaid for acquiring their shares.
Shareholders are the owners of the company and have contributed capital to the company. They own a slice of the company and have certain decision-making powers. However, they are typically not responsible for the day-to-day management of the company. This responsibility falls to the management team and directors, who are subject to specific director duties, including the requirement to act in good faith and in the company's best interests.
Shareholders have voting rights, allowing them to have input on critical company decisions and hold management or other company staff to account. They are also entitled to a share of the company's remaining value or cash if it goes into liquidation and sells its assets. However, creditors generally take precedence over shareholders in this scenario.
Overall, the limited liability structure provides shareholders with protection from personal liability for the company's debts and obligations. This limitation of risk helps promote business activity and contributes to economic growth. It also enhances the company's credibility, making it easier to access funding and facilitating the company's indefinite growth.
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Shareholders' entitlement to dividends
Shareholders of a company incorporated in New Zealand are entitled to dividends paid by the company each year. The size of a shareholder's share of any dividend depends on the number of shares they own, with dividends shared proportionately. The payment of dividends is governed by the NZ Companies Act 1993 and by the company's constitution, if it has one. Unless the constitution says otherwise, the company's board of directors may authorise the payment of a dividend without needing a decision of the shareholders. However, the company must satisfy the "solvency test".
Directors may not authorise dividends to be paid to some but not all of the shareholders in a particular class, nor may they pay some shareholders in a class. A company director who fails to take reasonable steps to ensure that the necessary conditions (such as the solvency test) were satisfied before a dividend was paid will be personally liable to the company to repay the dividends or that part that cannot be recovered from shareholders.
Shareholders are entitled to waive their allocated dividend, provided they give written notice to the company. A company may choose to issue shareholders with other shares as a whole or partial replacement for a proposed dividend, provided certain conditions are satisfied. The board of directors must resolve that the offer is fair and reasonable to the company and to all shareholders, and that the offer is available to all shareholders of the same class on the same terms.
Shareholders are also entitled to a share of the company's remaining value or cash if it goes into liquidation and sells its assets. However, creditors generally take precedence over shareholders in this scenario.
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Shareholders' ability to influence governance
Shareholders in New Zealand have a number of rights and some degree of control over the company they hold shares in. They have the ability to influence governance and are entitled to any dividends paid by the company each year. They are also entitled to a share of the company's remaining value or cash if it goes into liquidation. The only liability for shareholders is for any amounts unpaid for acquiring their shares.
Shareholders can influence governance in several ways. Firstly, they have voting rights, which allow them to have input on critical company decisions and hold management or other company staff to account. These decisions are typically only those critical to the operation of the business, such as the appointment of directors or approving an exit transaction. Secondly, shareholders can pass a resolution on management decisions if enough of them feel strongly about a particular issue.
The New Zealand Corporate Governance Forum Guidelines (NZCGF) are intended to be used by companies and institutional investors as a contemporary governance reference for shareholders, chairpersons, directors and senior executives of listed companies. The Guidelines reinforce that boards and management teams are accountable to the owners and that boards should foster constructive relationships with shareholders. The Guidelines also recommend that listed companies make their code of ethics, board and committee charters, and certain policies publicly available on their website.
The Financial Markets Authority (FMA), a regulator, may apply to the court for management banning orders that prohibit individuals from engaging in certain activities with regard to the governance and management of companies. In the course of a company liquidation, shareholders have limited powers to apply to the court to order a director or other company staff to repay or restore money or property if that person has misapplied, retained, or become accountable for that money or property, or been guilty of negligence or breach of duty.
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Shareholders' role in company management
A shareholder is a person, company, or organisation that owns shares in a company. They are considered partial owners of the company and are entitled to certain privileges, such as receiving profits and exercising control over the management of the company. Common shareholders, who own the company's common stock, have the right to control how the company is managed and can bring charges if management engages in activities that could harm the organisation. They also experience higher capital gains and losses compared to preferred shareholders. On the other hand, preferred shareholders have no voting rights or involvement in managing the company. Instead, they receive a fixed amount of annual dividends.
Shareholders play a crucial role in company management by appointing directors, who are responsible for overseeing the company's operations and providing strategic policy direction. Directors are hired by the shareholders to carry out responsibilities related to the company's daily operations, with the aim of improving its status. Shareholders also have the right to vote on important company matters, such as deciding on director compensation and setting limits. They can also be elected to the board of directors, further influencing the company's strategic direction.
The relationship between shareholders and company management is essential for the success of the organisation. Shareholders, as partial owners, have a vested interest in the company's performance and are motivated to make decisions that drive growth and increase the value of their investments. They provide capital to the company, receive dividends when the company performs well, and benefit from the increased value of their shares.
While shareholders have the right to exercise control over the management of the company, it is important to note that the day-to-day management is typically handled by a team of mid-level managers. These managers have functional roles within the organisation and are responsible for setting objectives, organising operations, hiring and leading employees, and ensuring that company goals are met. They work under the direction of the directors, who oversee the overall strategic direction of the company on behalf of the shareholders.
In summary, shareholders play a vital role in company management by appointing directors, voting on key matters, and providing capital and strategic direction. They have a direct influence on the company's operations and future prospects, making them key stakeholders in the organisation's success.
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Frequently asked questions
Yes, shareholders can remove directors in New Zealand. This is usually done by an ordinary shareholders resolution, which requires a simple majority vote.
Yes, shareholders can appoint directors. However, they do not automatically have a seat on the board of directors themselves.
No, shareholders typically only vote on critical company matters. Day-to-day decision-making is the responsibility of the management with oversight from the board of directors.
