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Shareholder Rights

Piggy recalls that the trading of CFI Holdings was suspended in 2018 because of several reasons such as the failure to comply with listing rules and corporate governance issues. As a result, most shareholders have had their funds trapped in the stock for some time now. It has also been reported that these breaches were triggered by wrangling between two major shareholders; Messina Investments and Stalap. Messina Investments is Nicholas van Hoogstraten’s investment vehicle while Stalap is jointly owned by the National Social Security Authority (NSSA) and Zimre Holdings Limited (ZHL).

Most investors or analysts that have attended AGMs or EGMs where Nicholas van Hoogstraten is present would confirm that he is a vocal and agile investor. In fact, Nicholas van Hoogstraten allegedly opposed any fresh capital requests by CFI. He also demanded that the sale of 81% of Langford Estate to Fidelity Life Assurance in 2016 be reversed, alleging irregularities.

Nicholas van Hoogstraten

Nicholas Marcel Hoogstraten (now Nicholas von Hessen) was born on 25 February 1945 and is a British businessman. He is known for his property empire as well as his life history. Nicholas has made headlines in newspapers and on television for decades, ever since he became a millionaire at the age of 22. His fortune has been placed as high as £800 million and built on property, mines, art, farms, shares and money-lending. He is reported to have owned thousands of properties, the bulk of which were in Sussex, but his most well-known and ostentatious display of wealth is the gigantic Hamilton Palace, a mansion in Uckfield, East Sussex. He is an active investor on Zimbabwe capital markets. The CFI story brings us to one important aspect that comes with ownership of stock; shareholder rights.

Shareholder rights refer to the bundle of rights which a shareholder possesses by virtue of part or total ownership of shares. Such rights can vary according to types of owners, types of shares, and other contractual rights, which may attach to shares or may stem from a separate contractual right. The specific contents of the bundle of rights vary across legal jurisdictions, across companies, and across types of shares. A shareholder or stockholder is the owner of part or all of one or more shares of the stock of a corporation or a mutual fund. Therefore, the shareholder is, at least theoretically, a part owner of the corporation, which is a business entity, which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company’s shares (certificates of ownership). While shareholder rights vary depending on state regulations where a company’s incorporated or specific corporate bylaws, the following rights are common across different markets;

The right to information/ inspect records

Shareholders have the right to investigate the company’s administrative and financial records. To review financial statements or governing documents, shareholders of private entities need to request those documents specifically.

The right to vote

Shareholders are eligible to vote on certain business decisions, like for who should be on the Board of Directors, for instance. The two standard voting methods are straight voting and cumulative voting. The straight voting method gives a shareholder one vote per share for each seat on the board of directors. To determine the number of a shareholder’s votes in cumulative voting, you must multiply the number of the shares by the number of available director seats. The shareholder may use these votes to vote for one director or split them among several seats.

The right to influence the fundamental changes in a corporation

Any cardinal changes require the shareholders’ approval. This includes (i) mergers (when two companies become one), (ii) sale of assets and (iii) dissolution.

The right to make changes in governing documentation

Shareholders can vote for any changes to the governing documents, such as the charter or the bylaws amendments.

The right to hold meetings

All corporations must hold yearly shareholder meetings to vote and to discuss any necessary governance actions. Directors and large shareholders have the right to request special meetings for any type of an issue. Annual general and special meetings provide shareholders with opportunities to convey their views about the governance, stewardship, and direction of their companies. Consequently, they should have ample notice of future meetings, together with sufficient information about the issues under consideration so that they can carefully consider their responses and votes. Moreover, companies should adopt systems and procedures that permit shareholders to exercise their voting rights, regardless of their presence at company meetings.

The right to make proposals

Shareholders can suggest topics for corporate meeting discussions and voting. Except for regular business operations, shareholders can make proposals pertaining to any other aspects of the company, such as environmental or labour practices and political spending.

The right to dissent

Dissenter rights protect shareholders and allow them to sell their shares if they do not approve of the core corporate management or governance. This way, shareholders can make the corporation buy their shares back at “fair value.”

The right to transfer ownership

Shareholders can trade their stock on the exchange market. Common stockholders have the right to sell or transfer their shares when they want.

The right to dividends

Shareholders are entitled to profits in the form of dividends. The board of directors determines the percentage of profits to be paid out. If a company’s Board of Directors declare a dividend to common stock shareholders, they have the right to receive those dividends.

The right to residual claim during liquidation

If a company is forced to sell off its assets or liquidate because of bankruptcy, common stockholders have a right to a portion of earnings after any debt has been settled.

The right to limited liability

If the company is under fire from lawsuits or in debt, shareholders are only liable for money they have invested in the company.

The right to sue for wrongful acts

When shareholders have been wronged, they have the right to file a derivative suit, which is a lawsuit brought by a shareholder individually or as part of a class action suit on behalf of a company against a third party. Such lawsuits usually aim to obtain monetary damages. However, in most cases they are generally seeking to protect shareholder interests.

Pre-emptive rights

If a company decides to issue more shares of common stock, current stockholders have pre-emptive rights. This means that they have the chance in a “rights offering” to buy enough new shares to maintain their percentage of ownership in the company.

All in all, shareholders and those who manage shares for others need to know their rights in order to make informed and responsible investment decisions. In order to properly exercise their rights, shareholders need to know information about securities such as any limitations on their rights, whether a company elects directors using a majority-voting standard, their eligibility to approve significant company transactions, any ability to submit dissident resolutions at an annual meeting, how to participate in share voting − in person or otherwise − and opportunities and responsibilities for shareholder engagement in such cases as cumulative and confidential voting or advisory votes on compensation. Chapter 5 of the Investor 101 Handbook covers Shareholder Rights. Download the Handbook below;

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