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Buying shares and investing in a company can be an exciting time. Whether you are buying shares to start an investment portfolio, build your wealth or possibly have another income stream, it is important to understand your role as a shareholder. As experts in dispute resolution, Slater and Gordon has seen the confusion and frustration that can be caused when shareholders misunderstand their rights and obligations.

What is a shareholder?

A shareholder is a part owner of a company. All companies must have at least one shareholder.

You become a shareholder in a company if:

  1. the company issues shares to you; or
  2. an existing shareholder in the company transfers their shares to you (usually for a price) and the company registers the share transfer.

What rights do shareholders have in a company?

Your rights as a shareholder will depend on the type of company you hold shares in (public or private) and what class of shares you hold (ordinary or preference shares). Shareholders’ rights will also depend upon the company’s constitution (if it has one), the ‘replaceable rules’ set out in the Corporations Act 2001 (Cth) and any executed shareholder agreements.

Generally, shareholders enjoy the following rights:

  • Right to attend shareholder meetings and vote on certain issues (e.g. appointment and removal of directors)

  • Right to sell your shares (there may be restrictions imposed)

  • Right to participate in corporate actions offered by the company (such as rights and share issues or share buybacks)

What obligations do shareholders have to a company?

Because a company is a separate legal entity, shareholders’ duties are generally limited to any unpaid amounts on shares held by that shareholder. Any other obligations will be specifically provided for in the company’s constitution and/or a shareholder agreement.

What are the major differences between shareholders and directors?

The major differences between shareholders and directors are:

  • Shareholders are part-owners of a company, whereas directors are responsible for the management of the company’s business activities
  • Shareholders’ duties are generally limited to any unpaid amounts on shares they hold, whereas directors have range of duties under federal, state and territory law

Common pitfalls

Although it is common for people to buy shares, it is important to take note of the common pitfalls we have seen:

How we can help

Slater and Gordon can help you by:

  • Providing you with advice about your rights and obligations as a shareholder in a company
  • Assisting you to negotiate a resolution regarding an existing dispute with company or a shareholders dispute
  • Representing you in any legal proceedings relating to a company or shareholder dispute

You can learn more about our dispute resolution services here, or if you have an enquiry about a shareholder dispute, you can submit an enquiry online.

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

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