Rights and Duties of a Shareholder
What is a shareholder?
A shareholder is an individual or company that legally owns one or more shares of stock in that company.
A company's shareholders collectively own that company.
A company may be permitted by its articles of association to issue different classes of shares which may grant a shareholder special privileges depending on the class of stock they hold.
Such privileges may include the right to vote on elections to the board of directors, purchase new shares issued by the company, a share in the distribution of the company’s income and a right to the company’s assets in liquidation.
Duties of a Shareholder
In a limited liability company the main duty of a shareholder is to pay the company any outstanding amount of the purchase price agreed for the shares allotted to him or her. The amount may be payable where the company calls for funds or where it is provided in the terms of issue of the shares that payments are made in installments. Where there is unlimited liability in a company shareholders are liable without limit for the debts of the company in the case of insolvency i.e. unable to pay its debts.
Rights and Powers of Shareholders A company’s articles of association sets out the powers of shareholders and those powers that shareholders delegate to the directors of the company. Generally articles of association provide that a business is managed by the directors as laid out in the articles and directions given by shareholders in a general meeting. A number of fundamental matters must be ratified by the members, such as an alteration of the company’s articles of association. By amending the articles of association, members can alter their relationship with the directors. If a company is exempt from audit as provided for by the Companies (Amendment) (No. 2) Act 1999 it is important to note that shareholding members have a right to block this exemption.Section 33 of the Act allows shareholders, who hold 10% or more of the total voting rights to block the decision to avail of the audit exemption. A notice by these members to block the decision to avail of the exemption must be served in writing on the company in the year preceding the financial year concerned or during the financial year to which the notice relates, but not later than one month before the end of that year. Transfer of Shares | |
A shareholder’s shares in a company are transferable personal property. In a private company however, restrictions must be placed on the transfer of shares. This restriction is normally implemented by granting the directors of a private company the discretion to refuse to register the transfer of shares to a person of whom they do not approve and/or requiring the shareholder who wishes to sell their shares to first offer those shares for sale to the existing members of the company. |
Right to Dividends
Dividends are payments made by a company to its shareholder members. When a company earns a profit, that money can be either re-invested in the business or it can be paid to the shareholders as a dividend. Many companies retain a portion of their earnings and pay the remainder as a dividend. Dividends can only be proposed by the directors. There is no legal obligation on a company to declare a dividend even where there are sufficient distributable profits available, unless its articles or memorandum of association require it to.
Once a final dividend (as opposed to an interim dividend) is declared on a shareholder’s share, they are entitled to payment and in the event of non-payment can sue the company for arrears in the same way as any ordinary creditor may sue for a debt. Where the directors propose a dividend, it must then be approved by the members. A dividend can only be paid out of a company’s profits which are available for distribution. The profits available for distribution are the company’s net accumulated realised profits. In simple terms this means that only the company’s aggregate profits less losses can be used to pay dividends.
Tax Liability
With certain exceptions, dividends paid by Irish resident companies on or after 6 April 2000 are subject to Dividend Withholding Tax (DWT) at the standard rate of income tax. DWT, where applicable, is deducted by the Company from all dividends. The following summarises the position in respect of different categories of shareholder:
Individuals resident in the Republic of Ireland for tax purposes are liable to DWT in respect of dividends received. Individual shareholders are liable to Irish income tax on the amount of the dividend before deduction of DWT, and the DWT is available for offset against their income tax liability; where the DWT exceeds such liability, the shareholder may apply to the Revenue Commissioners.
Shareholders who receive the dividend in a beneficial capacity can be exempt from DWT. They must make a declaration of their entitlement to exemption. This declaration must be made on one of a number of standardised declaration forms, authorised by the Revenue Commissioners. The following classes of shareholders may receive their dividends gross:
• Companies resident in the Republic of Ireland for tax purposes;
• Qualifying Employee Share Ownership Trusts;
• Exempt Approved Pension Schemes;
• Collective Investment Undertakings;
• Charities exempt from income tax on their income;
• Athletic/amateur sports bodies whose income is exempt from income tax;
• Designated stockbrokers receiving a dividend for the benefit of the holder of a Special Portfolio Investment Account (‘SPIA’);
• Qualifying fund manager of approved retirement fund or an approved Minimum Retirement Fund;
• Persons exempt from tax on income from personal injury claims.
This information, which is given for the general guidance of shareholders, does not purport to be a definitive guide to relevant taxation provisions. Shareholders should take professional advice if they are in any doubt about their individual tax positions.
