What is a Company’s Duty to its Shareholders?

Monday September 27, 2021

What is a Company’s Duty to its Shareholders?

For many companies, raising capital often marks a major milestone. With increased sources of capital, the company can grow, hire new employees, and develop new products that can leave a lasting impact on the world. With the continuing developments of exemptions like Regulation A+ and Regulation CF, companies have a powerful mechanism to raise this needed capital without the costly expense of going public through an IPO.

 

However, this increased access to capital does not come without great responsibilities. Any company taking investments from shareholders are obligated to carry out their duties to their shareholders.

 

By definition, shareholders own a portion of the company depending on how much they have invested. With that ownership, shareholders are granted rights such as voting, access information, and participate in meetings. As a company that has taken investments from these individuals, the company must ensure that these rights are maintained.

 

First, companies are required to hold an annual general meeting, sometimes called an annual shareholder meeting. During these meetings, companies must present information on the company and allow shareholders to vote on company matters. It is the company’s duty to shareholders to conduct this meeting within 150 days of the end of their fiscal year, notifying shareholders no less than 20 days before and no more than 50 days before the meeting is scheduled to be held. If a shareholder is not able to attend, they should be able to cast their vote by proxy.

 

Additionally, companies must allow shareholders to access the information they are permitted to view. Such information includes the company’s articles of incorporation, bylaws, financial statements, meeting minutes, and corporate stock ledgers. The company must provide this information to its shareholders when requested.

 

Beyond these duties, it is also the duty of the company, its directors, and leadership to make business decisions with good judgment. In transactions, the directors should not personally benefit from any decision at the company’s expense. Officers should also conduct themselves the same way, decisions should be made so that they are in the best interest of the company.

 

Any company with shareholders is responsible for conducting business in the best interest of the shareholders and the company itself. Shareholders must be required to vote on significant decisions, while the company must provide shareholders with important company information they are permitted to have access to. Maintaining these duties is essential to good and legal business practices.

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