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Holding shares in a company is exciting and often extremely rewarding, both financially and in terms of your involvement with the business. All companies are ultimately owned by their shareholders. When you have shares in a company, you own a piece of that business. Under New Zealand law, being a shareholder gives you a number of rights and some degree of control over the company. This article will set out:

  • how to become a shareholder;
  • what shareholders actually do in most companies; and
  • what your rights and liabilities are if you become a shareholder.

How To Become a Shareholder

There are a few different ways to become a shareholder. These are that:

  • a company issues shares to you. Companies must record details of their shareholders on their own share register, which will also appear on the Companies Register;
  • a shareholder can transfer shares to you. Again, the company must record and keep these details up to date; or
  • you can buy shares of a publicly traded company off an exchange like the NZX. Public companies have to comply with more stringent requirements as they can sell shares to the general public.

Role of Shareholders in a Company

As a shareholder you own a slice of the company and shareholders are, as a group, responsible for the business. However, shareholders are rarely responsible for the day-to-day management of the company. Unless you are specifically tasked with doing so.

For example, if you are an employee who also owns shares.

The key role of shareholders is to contribute to the governance of a company. Generally, for each share you hold, you will get a vote on issues raised at company meetings. These issues can include a range of different things but the most common issues for shareholders to weigh in on are:

  • appointing directors or auditors;
  • removing a director;
  • adopting or changing the company’s constitution in some way;
  • approving a major transaction; or 
  • putting the company into liquidation and closing the company.

Shareholders are also able to review the management of the company. Ultimately, the company executives are responsible to the shareholders. So shareholders can:

  • question the management;
  • discuss any facet of management; and
  • pass a resolution on management decisions if enough shareholders feel strongly about any particular issue.

What Are My Rights As A Shareholder?

There are a few fundamental rights you have as a shareholder. First, are the voting rights described above. You will be able to:

  • input into strategic company decisions;
  • vote on certain issues; and
  • hold management or other company staff to account. 

Shareholders are also entitled to a proportional share of any dividends or distributions paid by the company.

The size of your share of any dividend depends on how many shares you own. Typically, dividends are split between all shareholders on that proportional basis.

Lastly, if the company goes into liquidation and sells its assets, it entitles you as a shareholder to a proportional share of the money raised from that sale. However, creditors generally take precedence over shareholders. As a shareholder, you only get a share of the money left over after the company pays any outstanding debts. 

Do I Have Any Liabilities As A Shareholder?

Usually, there are no major downsides to being a shareholder. Holding shares gives you a financial interest in a company, and more control and influence over its direction. 

One liability that can occur is if you have not paid for your shares in full when the company goes into liquidation. In this case, you will be forced to pay whatever amount is outstanding for the value of your shares. 

Key Takeaways

Shareholders play a vital role in all companies. If you are a shareholder, it is important to know your role in the company, and the rights and responsibilities you have. As a shareholder, you will get to vote on important company decisions, and be able to ask questions and challenge management if you feel that is appropriate.

Your rights as a shareholder include the ability to influence governance, as well as your entitlement to any dividends paid by the company each year. You are also entitled to a share of the company’s remaining value or cash if it goes into liquidation. There are few liabilities to be aware of, but it is important to note that you may be forced to pay for any shares you have not yet fully paid for if a company goes into receivership.

If you want to know more about the rights and liabilities of shareholders, contact LegalVision’s New Zealand corporate lawyers 0800 005 570, or complete the form on this page.

Frequently Asked Questions

How do I know who a company’s shareholders are?

You can check this on the Companies Register.

Why is it good to own shares in a company?

There are financial reasons to own shares, like growth of the share value over time, and dividends paid yearly or from time to time. It also provides you with involvement and some degree of influence with the company’s decision-making.

What decisions do shareholders make instead of management?

Typically, management make day-to-day decisions about a company and its operation. Shareholders usually vote on select strategic decisions like a strategic plan or the selection of directors and auditors.

Can employees also be shareholders?

Yes, employees of a company can also own shares in the company. This is often used in early-stage companies like start-ups in order to incentivise employees to join and become invested in the company’s success.

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