"The strongest dimension of democracy is the highest degree
of participation and not with the 'degree of freedom or
Shareholders are one of the vital or should say; are the supreme
components in the corporate scenario. They are theoretically
empowered to influence and even frame major corporate decisions and
are the managers of their company. The aim of legislature gets
fulfilled when shareholders are free to exercise their rights in a
democratic way and the device through which shareholders influence,
lies in the voting rights, attached to ordinary shares. An ordinary
share usually grants on its holders the right to cast vote on all
matters, placed in the shareholders meeting except few
Shareholders can exercise control over the Company in several
ways. The one way to exert control over the decision making process
in corporate is by utilizing their rights attached and can explore
opportunities by raising their voices. Another way to control in
today's era, rests on the market forces. The Shareholders can
express their content by reacting through market forces by way of
selling or buying the shares.
The management of the Company is responsible towards involvement
of shareholders in the decision making process in order to create a
"check and balance" system. This will ensure transparency
in all the acts done by the company or by the shareholders. In
shareholders Democracy everyone has equal opportunity to elect and
constitute a board to manage and conduct the affairs of the company
and to decide the future course of events of the company.
The central issue of shareholders participation in Corporate
Governance is that of disclosure and information flow to the
shareholders. Informed participant can actively participate in
company's affairs, contribute effectively in the discussions
and help the management in decisions and the participation of the
shareholders has been increased, by way of proxies.
The new right which allows them to take part in meeting without
attending it is passing of resolution by postal ballot system. The
need for proxies and postal ballot systems arises as companies in
various instances hold their meetings in the remote places of the
country and it is very troublesome for the members to access those
meetings. No one can challenge the corporate as they hold their
meetings as per the laws.
The net effect is that a minute number of shareholders are
really able to access those meetings and exercise their voting
rights. Thus, where a resolution has been passed by them at a
general meeting which has been attended by say, hardly 2% of the
total number of shareholders holding say 5% of the voting power, it
cannot be said that the shareholders' democracy has been
established in true spirit although there is no contravention of
To overpower the aforesaid situation that has been in existence
for decades in India, the inauguration of the concept of postal
ballot in the law books is really welcome. It provides for true
shareholders' democracy. The listing agreement has also
provided for companies passing certain resolutions through postal
ballot. Through the postal ballot system, every member can make
his/her contribution in the important decisions of the company
without attending any meeting.
The justification behind proxies is that, it is not suitable for
every member to attend meeting every time when it is called but
they may be very interested in the proposed resolutions which have
to be passed in the proposed meeting and wants to take part in itby
empowering and appointing any person on their behalf to vote on the
concerned matter. This approach enables the participation
The Shareholders have limited access to the information on the
policies and practices and also have very limited access to
corporate proxy machinery. This is the limitation of the proxy
system that shareholders are not aware about their rights and lack
of information availability is also the main hurdle in implementing
the law in true letter and spirit.
In short,'Democracy is not something you
conceive in or a place to hang your hat, but it is something in
which you have to participate. If you will stop doing it, democracy
A Company is governed by its Board and the shareholders are the
voters who mould the decisions through the various channels as
prescribed by the law. To assimilate the principles of democracy in
our corporate culture, every eligible member should have to make
vigorous or determined attempts in the decision making process of
the company and the legislature should have to make laws according
to the changes in the global scenario and to implement the laws not
only in letter but also in spirit.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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