Rights of Ordinary Shareholders

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The ordinary shareholders are having the following rights in respect of shares held by them:

1. Right to vote:

As the ordinary shareholders of a company are its owners, they are entitled to elect the board of directors. The board, in turn, select the management and management actually controls the operations of the company. This right to vote is not confined to mere election of directors; however, it covers a large number of issues like the amendment of memorandum of association or articles of association, adoption of the schemes of consolidations and mergers, alteration of the authorized capital, etc.

2. Right to income:

The ordinary shareholders are entitled to share in the earnings of the company only if cash dividends are paid. The declaration of cash dividends depends entirely upon the board of directors. This aspect reveals the basic difference between the rights of an ordinary shareholder and rights of a creditor. In case the company fails to pay the contractual interest and principal repayments the creditors can take legal action to assume that payment is made or the company is liquidated. Ordinary shareholders, on the other hand, have no legal recourse to a company for not declaring cash dividends or for not distributing the profits. They are entitled for cash dividends only when it is recommended and declared by the board of directors. However, if the management, the board of directors or both are engaged in fraud in not declaring cash dividends the shareholders can take their case to the court and force the company to pay the dividends.

3. Right against ultra vires acts of the company:

The management or board of directors is empowered to carry on only such acts or operations specified in the memorandum of association of a company. If they perform any act or operation beyond this memorandum is considered as ultra wires acts. These ultra wire acts are a breach of the agreement between the company and the shareholders. Therefore, a...
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