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    Prepared By: Riddhi Modi (B-28) Dimple Thadhani (B-49)

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    dimplethadhani
    This document discusses shareholder rights and agency costs in corporate governance. It provides an overview of [1] agency costs and how financial and non-financial disclosures and independent oversight can help reduce these costs. It then outlines [2] over 20 specific rights that shareholders have, as described by various committees and reports on corporate governance and investor protection in India. These include rights related to company documents, share transfers, meetings, dividends, director appointments, and more. [3] It also discusses shareholder responsibilities and recommendations from committees on how to strengthen investor protection.

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    Prepared By: Riddhi Modi (B-28) Dimple Thadhani (B-49)

    Uploaded by

    dimplethadhani
    33 views37 pages
    This document discusses shareholder rights and agency costs in corporate governance. It provides an overview of [1] agency costs and how financial and non-financial disclosures and independent oversight can help reduce these costs. It then outlines [2] over 20 specific rights that shareholders have, as described by various committees and reports on corporate governance and investor protection in India. These include rights related to company documents, share transfers, meetings, dividends, director appointments, and more. [3] It also discusses shareholder responsibilities and recommendations from committees on how to strengthen investor protection.

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    This document discusses shareholder rights and agency costs in corporate governance. It provides an overview of [1] agency costs and how financial and non-financial disclosures and independent oversight can help reduce these costs. It then outlines [2] over 20 specific rights that shareholders have, as described by various committees and reports on corporate governance and investor protection in India. These include rights related to company documents, share transfers, meetings, dividends, director appointments, and more. [3] It also discusses shareholder responsibilities and recommendations from committees on how to strengthen investor protection.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    33 views37 pages

    Prepared By: Riddhi Modi (B-28) Dimple Thadhani (B-49)

    Uploaded by

    dimplethadhani
    This document discusses shareholder rights and agency costs in corporate governance. It provides an overview of [1] agency costs and how financial and non-financial disclosures and independent oversight can help reduce these costs. It then outlines [2] over 20 specific rights that shareholders have, as described by various committees and reports on corporate governance and investor protection in India. These include rights related to company documents, share transfers, meetings, dividends, director appointments, and more. [3] It also discusses shareholder responsibilities and recommendations from committees on how to strengthen investor protection.

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    Prepared by: Riddhi Modi(B-28) Dimple Thadhani(B-49)

    Theoretical Basis Agency Costs

    Shareholders are the owners of joint-stock, limited liability company and are its principals.

    By virtue of their ownership, the principals define the objectives of the company. The management, directly or indirectly selected by shareholders to pursue such objectives, are the agents. While the principals might assume that the agents will invariably do their bidding, it is often not so.

    Two broad instruments that reduce agency costs and hence, improve ethical corporate governance, are

    Financial and non-financial disclosures, and

    Independent oversight of management, which consists of two aspects the first relates to the role of the independent, statutory auditors and the second to the board of directors of a company

    Rights of Shareholders
    A Shareholder of a Company 1. has a right to obtain copies of the Memorandum of Association, Articles of Association and certain resolutions and agreements on request on payment of prescribed fees (Section 39); 2. has a right to have the certificate of shares held by him within 3 months of the allotment;

    Rights of Shareholders (contd.)


    3. has a right to transfer his shares or other interests in the company subject to the manner provided by the Articles of the Company; 4. has a right to appeal to the Company Law Board if the company refuses or fails to register the transfer of shares;

    5. has the preferential right to purchase shares on a pro-rata basis in case of a further issue of shares by the Company. Moreover, he/she also has the right of renouncing all or any of the shares in favour of any other person;

    Rights of Shareholders (contd.)


    6. has a right to apply to the Company Law Board for the rectification of the register of members; 7. has the right to apply to the Court to have any variation or abrogation to his/her rights set aside by the Court; 8. has the right to inspect the register and the index of members, annual returns, register of charges, and register of investments not held by the Company in its own name without any charge. He/she can also take extracts from any of them;

    Rights of Shareholders (contd.)


    9. is entitled to receive notices of general meetings and to attend such meetings and vote thereat either in person or by proxy; 10. is entitled to receive a copy of the statutory report;

    11. is entitled to receive copies of the annual report of the directors, annual accounts and auditors report;

    Rights of Shareholders (contd.)


    12. has the right to participate in appointment of auditors and the election of directors at the annual general meeting of the Company; 13. has a right to make an application to the Company Law Board for calling annual general meeting if the Company fails to call such a meeting within the prescribed time limits; 14. can require the directors to convene an extraordinary general meeting by presenting a proper requisition as per the provisions of the Act and hold such a meeting on refusal;

    Rights of Shareholders (contd.)


    15. can make an application to the Company Law Board for convening an extraordinary general meeting of the company where it is impracticable to call such a meeting either by the directors or by the members themselves;

    16. is entitled to inspect and obtain copies of minutes of proceedings of general meetings;

    17. has a right to participate in declaration of dividends and receive his/her dividends duly;

    Rights of Shareholders (contd.) 18. has a right to demand poll; 19. has a right to apply to the Company Law Board for investigation of the affairs of the Company. 20. has the right to remove a director before the expiry of the term of his/her office;

    Rights of Shareholders (contd.)


    21. has a right to make an application to the Company Law Board for relief in case of oppression and mismanagement;

    22. can make a petition to the High Court for the winding up of the Company under certain circumstances;

    23. has a right to participate in passing of a special resolution that the company be wound up by the Court or voluntarily; and

    24. has a right to participate in the surplus assets of the company, if any, on its winding up.

    Views of Various Committees on Shareholders Rights


    Working Group on the Companies Act CIIs Committee on Corporate Governance Kumar Mangalam Birla Committee Recommendations Relating to Shareholders Responsibilities of Shareholders Shareholders Rights

    The Naresh Chandra Committee


    The Narayana Murthy Committee Dr.J.J. Irani Committee Report on Company Law, 2005

    Working Group on the Companies Act


    Set up by Government of India Recommended many financial as well as non-financial disclosures A detailed directors report on - Directors remuneration and commissions - List of directors relatives as employees or Board - Disclose interest of director in particular project members

    -Disclose details of loans given to directors


    Other recommendations No. of changes were introduced in the companies bill.

    CIIs Committee on Corporate Governance


    CII has pioneered the concept of corporate governance in India and is internationally recognized name.

    This code requires listed company to give the following information

    - high and low monthly averages of share prices in a major stock exchange where the company is listed for the reporting year

    - greater details on business segments up to 10% of turnover, giving share in sales revenue, review of operations, analysis of markets and future prospects

    Kumar Mangalam Birla Committee


    The committee made 25 recommendations, 19 of them mandatory Recommendations Relating to shareholders

    Responsibilities of shareholders
    Shareholders Rights

    The Naresh Chandra Committee


    Two major issues the committee addressed and made appropriate recommendations were

    - The composition of audit committee

    - Representation of independent directors on a companys board The committee further recommended


    tightening of the noose around auditors by asking them to make an array of disclosures.

    The Naresh Chandra Committee contd


    Asking the CEOs and CFOs of all listed companis to certify their companies annual accounts, besides suggesting

    Setting up of quality review boards for the ICAI, ICSI, ICWA and a public oversight Board similar to the one in U.S

    The Narayana Murthy Committee


    Directors Appointment Information like quarterly result of the companies Shareholders/Investors grievance Committee

    Shareholders Rights and Postal Ballots


    Alteration in Memorandum of association Sale of whole or substantially the whole of undertaking Sale of substantial investments in the company

    Making a further issues of shares


    Corporate restructuring Entering into a new business Variations in rights attached to class of securities Matters relating to change in management

    Dr.J.J. Irani Committee Report on Company Law, 2005


    Power to Shareholders
    -Owners of the company to operate in transparent manner

    - Protect the rights of minority shareholders and also to ensure investor protection

    Guide For Investors/Shareholders

    SEBI in its guidelines to investors/shareholders, titled A Quick Reference Guide for Investors published recently, makes it known that a shareholder of a company enjoys the following rights :

    Rights of a shareholder, as an individual To receive the share certificates on allotment or transfer as the case may be in due time. To receive copies of the abridged Annual Report, the Balance Sheet, the Profit & Loss A/c and the Auditors Report. To participate and vote in General Meetings either personally or through proxies.

    To receive Dividends in due time once approved in General Meetings


    To receive corporate benefits such as rights, bonus etc., once approved.

    Rights of a shareholder, as an individual (contd.)

    To apply to Company Law Board (CLB) to call or direct the Annual General Meeting. To inspect the minute books of the General Meetings and to receive copies thereof. To proceed against the company by way of civil or criminal proceedings. To apply for the winding-up of the Company. To receive the residual proceeds.

    Rights of a shareholder, as an individual (contd.)


    Besides the above rights one enjoys as an individual shareholder, one also enjoys the following rights as a group of shareholders: To requisition an extra-ordinary General Meeting. To demand a poll on any resolution. To apply to CLB to investigate the affairs of the company. To apply to CLB for relief in cases of oppression and/or mismanagement.

    Rights of a shareholder, as an individual (contd.)


    As a debenture-holder, one has the right

    To receive interest/redemption in due time.


    To receive a copy of the trust deed on request. To apply for winding up of the company if the company fails to pay its debt.

    To approach the debenture trustee with his/her grievance.

    Shareholders Responsibilities
    Shareholders are responsible To remain informed

    To be vigilant

    To participate and vote in general meetings To exercise ones rights on ones own, or as a group.

    Investor Protection
    Definition: Investor protection can be defined by both (i) the extent of the laws that protect investors rights, and (ii) the strength of the legal institutions that facilitate law enforcement.
    Relationship Between Investor Protection and Corporate Governance How do Insiders Steal Investors Funds? Rights to Information and Other Rights

    Investor protection (Contd.)


    Corporate Governance through Legal Protection of Investors Impact of Investor Protection on Ownership and Control of Firms The Impact of Investor Protection on the Development of Financial Markets Banks and Corporate Governance

    N.K. Mitra Committee on Investors Protection


    This Committee gave the following recommendations: 1. There is need for a specific Act to protect investor interest. The Act should codify, amend and consolidate laws and practices for the purpose of protecting investors interest in corporate investment; 2. Establishment of a judicial forum and award of compensation for aggrieved investors;

    N.K. Mitra Committee on Investors Protection (Contd.)

    3.

    Investor Education and Protection Fund which is under the Companies Act should be shifted to the SEBI Act and be administered by SEBI;

    4. SEBI should be the only capital market regulator, clothed with the powers of investigation; 5. The regulator, SEBI, should require all IPOs to be insured under third party insurance with differential premium based on the risk study by the insurance company.

    N.K. Mitra Committee on Investors Protection (Contd.)

    6. SEBI Act 1992, to be amended to provide for statutory standing committees on investors protection, market operation and standard setting; and
    7. The Securities Contracts (Regulation) Act, 1956, to be amended to provide for corporatization and good governance of stock exchanges.

    Problems of investors in India


    Most of the investor complaints can be divided into three broad categories:

    1. Against Member-Brokers of Stock Exchanges

    2. Against Companies Listed for Trading on Stock Exchanges


    3.Complaints against Financial Intermediaries

    Law Enforcement for Investor Protection


    Investor protection is a multi-dimensional function, requiring checks at various levels, as shown below: Company Level: Disclosure and Corporate Governance norms. Stock Brokers Level: Self regulating organization of brokers.

    Law Enforcement for Investor Protection (Contd.)


    Stock Exchanges: Grievance redressal mechanism and Investor Protection Find. Regulatory Agencies: Investors Grievances and Guidance Division of SEBI Department of Company Affairs Department of Economic Affairs Reserve Bank of India Consumer Courts and Courts of Law

    Grievance Redressal Mechanisms


    Apart from SEBI and DCA two other avenues available to the investor to seek redressal of his complaints are :

    1. Complaints with Consumers Disputes Redressal Forums

    2. Suits in the Court of Law.

    SEBIs poor performance and suggestions for improvement


    SEBI failures: Poor Tackling of Price Manipulation and Insider Trading Issues Poor Conviction Rate Need to Enhance its Manpower Skills It should Simplify and Trim Regulations It should Tone up Quality of Disclosures It should solve Issues of IPOs and Mutual Funds

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