Shareholder's Right And Their Impact On Corporate Governance

Khurana and Khurana


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The system, processes or rules by which a company is controlled is known as corporate governance.
India Corporate/Commercial Law
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"Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company."1

The system, processes or rules by which a company is controlled is known as corporate governance. Corporate Governance includes processes which ensures accountability & transparency w.r.t various mechanisms within the company. Companies have certain shares which are owned by numerous individuals who are known as shareholders of the company. These shareholders have some rights and privileges w.r.t shares they hold in the company & for the same certain protections are granted to them. The concept of corporate governance is somewhat related and interlinked with the shareholders rights which helps in smooth functioning of the company's affairs. The significance of this study is understanding the influence of shareholder rights on corporate governance practices is essential for policymakers, corporate leaders, investors, and other stakeholders. This study aims to contribute valuable insights that can inform discussions on corporate governance reforms, regulatory frameworks, and the overall improvement of organizational accountability and transparency.


To examine the relationship between shareholder rights and corporate governance, assessing their influence on organizational decision-making, transparency, and accountability, with the aim of enhancing overall governance effectiveness.


"How do shareholder rights influence corporate governance practices, and what is the extent of their impact on decision-making, transparency, and accountability within organizations?"

CHAPTER 2 : Landscape of Shareholders Rights

Who is a Shareholder?

A shareholder, in the context of privately held company shares, is an investor who holds ownership in the company. The shareholder gains a range of benefits from this ownership, including control and financial rights. Economic rights comprise the right to sell one's ownership interest in the firm and the claim to dividends from its profits. On the other hand, control rights mostly pertain to the right to cast a vote on business issues. The owners (the shareholders) and management (represented by the board of directors) work together to oversee the company's governance.

Rights of the shareholders are important as they are the door to their participation in decision making process of the company. There are various rights of the shareholders not exclusive but are right to vote; right to dividend; right to elect directors of the company; sell the shares; right to approve M&A also one of the crucial rights of the shareholder is to his right to ask information about the company that may include financial statements, annual reports etc. this helps the shareholder to be sure about their investment in the particular company and manage their investments accordingly.

Contemporary Shareholder Activism, does it affect corporate governance ?

When a shareholder tries to influence the company processes, operations or policies through a course of action is called Shareholder Activism. They might do this for different reasons, like increasing the profits for shareholders or promoting things like environmentally friendly practices, avoiding certain countries, or supporting workers' rights. These activist shareholders buy a big share of the company's ownership to have a say in how it's run. Once they have that influence, they work to make the company better by cutting costs, making things run smoother, avoiding business in certain countries, and making sure the company makes as much profit as possible.

In India, directors are mainly responsible for running a company and making decisions. While external parties usually can't interfere in a company's internal matters, shareholders have some power to hold the board and management accountable. For example, two major investors of Fortis Healthcare Ltd., who held 12% of the company2, effectively ousted a director and installed new ones in May 2018 upon dissatisfaction related to company sale process. This is an illustration of shareholder activism, in which owners utilize their power to influence management decisions at the firm.

In another instance involving Reliance Industries Limited (RIL) and Reliance Retail Ltd., minority shareholders threatened to sue the company over a share swap scheme. This scheme offered one share of RIL for four shares of Reliance Retail Ltd., and minority shareholders demanded an exit strategy. These cases show that modern shareholders not only sell their shares in response to financial issues but also actively assert their rights in situations involving dishonest board practices or poor management and thereby affecting the corporate governance of the company.

Also, concerns over declining revenue and profits, compounded by perceived managerial opacity, led to a spike in shareholder agitation among Indian corporations during the 2020 economic aftermath from the pandemic. Investor rejection of board suggestions to increase executive remuneration was one prominent example of this action. Notably, shareholders opposed a plan to increase managing director Siddhartha Lal's pay by 10% in August 2021, posing a challenge to Eicher Motor Ltd.3

CHAPTER 3: Impact of Shareholder Rights on Corporate Governance

As we saw above how the rights of shareholder and shareholder activism affects the corporate governance structure of a company. In this chapter we will look through the glass of corporate governance as to how various rights of shareholders impact the governance structure of the company. Different categories of people have important roles and influence over Corporate Governance (CG) inside a business. These entities are divided into external and internal stakeholder groups. The owners of the corporation, or shareholders, are an example of an internal stakeholder. Making sure their investment in the business yields advantages and maximum profits is their main priority. The Board of Directors, who serve as delegates chosen by the shareholders to manage the company's operations, is another internal body. The Management is the last group, in charge of running the company on a daily basis.

Right of Shareholder to elect Director of the company

One essential component of corporate governance is the right of shareholders to choose the board of directors of a corporation. This important privilege gives shareholders the ability to shape choices that the board makes on their behalf. The board makes decisions about senior management appointments, key transactions, and strategic direction. By actively participating in the nomination and voting processes, shareholders may influence the makeup of the board and guarantee that it reflects their interests and is accountable. The 2017 Wells Fargo & Company4 lawsuit served as an instructive example of how shareholders used their voting rights to oppose the bank's CEO compensation plan, demonstrating the real effects of this power on business performance and decision-making.

Right of Shareholder to sanction business actions of the company

An important business activity, such as a merger, acquisition, or change to the capital structure of the firm, must be approved by shareholders. By exercising this privilege, shareholders are guaranteed to actively engage in decisions that affect their assets. Approval is usually based on voting at special shareholder meetings and is required by law or corporate regulations. In the context of mergers and acquisitions, for example, shareholders are essential in determining whether the firm should explore such deals. Similar to this, shareholder approval is required for changes to the capital structure, such as the issuance or buyback of shares. The significance of shareholder engagement in determining corporate governance is reinforced by this active involvement, as demonstrated by prominent situations such as Disney's 2018 takeover of 21st Century Fox5. In the end, shareholder approval guarantees responsible decision-making inside the corporation and protects their interests.

Right of Shareholder to inspect registers maintained by the company6

The shareholders right to inspect the register maintained by the company or ask for any information not exclusive but include financial statements, audit reports etc. are significant right granted to them by the company upon its incorporation. This right ensures that the shareholders are able to make informed decisions w.r.t their investments in the company. This right impacts the corporate governance of the company promoting:


Information on the company's general operations, performance, and financial health is subject to the right of shareholders to obtain. Their ability to evaluate the company's management and make well-informed judgments is facilitated by this transparency. It is ensured that shareholders have access to pertinent information about the company's strategies, risks, and other material information that might influence their choice to invest.


Shareholders are able to hold the company's board of directors as well as management responsible for their activities through the ability to see registers and receive information. To make sure the business is being run in their best interests, shareholders might carefully review financial records, meeting minutes, and other papers. This responsibility deters unethical behavior, poor management, and any other behaviors that can have a detrimental effect on shareholder value.

Prevention of Fraud and Mismanagement

Shareholders have the opportunity to view registers in order to spot any abnormalities, inconsistencies, or possible fraud. This discourages dishonest behavior and encourages the organization to follow sound governance procedures. As watchdogs, shareholders may be extremely helpful in stopping poor management and making sure the business follows the law and moral principles.

Legal Safeguard

Corporate rules and regulations frequently safeguard the right to information and inspection. Providing a legal framework that promotes corporate governance, shareholders have the ability to bring legal recourse if their rights are denied or if there are allegations of corporate misbehavior.

Right of Shareholders to attend or participate in the meetings of the company

Annual General Meeting and Special Meetings or EGMs are entitled to be attended by shareholders, who can use this opportunity to discuss issues, ask questions of the board and management, and learn more about how the business is run. Once a year, annual meetings provide a platform for voting on important issues such as business initiatives and director elections. This privilege allows shareholders to participate in decision-making by enabling them to attend in person or virtually. A prime example of how shareholder engagement affects corporate governance is the 2020 Exxon Mobil7 shareholder vote on climate change risk disclosure. The power of shareholders to elect directors has a direct impact on governance, giving them the capacity to exert influence and control the firm in their best interests.

Problem of influence on corporate governance in the company between Majority shareholders and Minority shareholders

Shareholders are the ones who have a stake or equity in the company. By the virtue of their ownership or equity in the company they have certain rights which they can exercise against the company. There are two types of shareholders namely, Institutional Shareholders and Individual Shareholders8.

They have certain basic rights as discussed:

  • Right to Vote
  • Right to ask for information
  • Right to elect directors
  • Right to dividend
  • Right to sell their shares etc.,

Minority Shareholders

A minority shareholder is widely understood to be an equity holder who owns less than fifty-percent of the stock in a business, even though the term is not defined by law. Minority shareholders do not have management or voting control over the firm because of their small holdings. However, corporate law gives minority shareholders particular freedom to behave in their own best interests, free from fiduciary obligations to majority shareholders—with certain exceptions.

Roles, powers and Rights of the Minority Shareholders

Minority shareholders are not as powerful as big shareholders, but they still have a great deal of impact over how the company operates. Examining company documents, going to shareholder meetings, speaking with directors and other stakeholders, and filing complaints against any breach of fiduciary duty are just a few of their responsibilities and powers. Under the Companies Act of 2013, minority shareholders have the authority to choose or elect a director whenever a certain number of them come together in the area of corporate governance. For matters pertaining to mismanagement and oppression, they may also approach the National Company Law Tribunal. In addition, minority shareholders may acquire shares and bring class action lawsuits in circumstances of reconstruction and amalgamation in accordance with the Companies Act of 2013.

Dynamics and Causes of Minority-Majority Shareholder Conflicts

Majority shareholders often perceive an elevated sense of entitlement and unrestricted authority over the company, sometimes leading to punitive measures against minority shareholders. Unethical practices by controlling shareholders, such as diverting funds, initiating unauthorized transactions, and favoring directors or employees aligned with them, can diminish overall company growth and harm minority shareholders. These minorities face challenges like the potential removal through squeeze-out tactics, claims based on fiduciary duties, and limited influence in companies where majority shareholders dominate the board. Due to their limited powers and market influence, minorities may be devalued, prompting majority efforts to eliminate them through various means.

Empowering Shareholders: A Legal Framework for Enhanced Protection and Influence in Corporate Governance

  • Empowering "Minority" Shareholders
  • Enhancing Transparency and Fairness: To revise shareholders' agreement to ensure transparent disclosures, mandates compulsory dividend payments to minority shareholders, and prohibits any unfair prejudicial treatments. It facilitates active participation of minorities in general meetings, fostering inclusivity.
  • Strengthening Minority Protections: To addresses share transfer negotiations, safeguards against dilution by granting preemption rights to minorities, and outlines provisions for utilizing winding up actions. It introduces Piggy Backing9, allowing minorities the opportunity to acquire majority shares, fostering equitable opportunities.
  • Legal Framework and Safeguards: Emphasizing legal clarity, the agreement specifies 'Minority' and 'Minority Interest' in substantive law, delineates rights in cases of oppression and mismanagement, and outlines safeguards for minority shareholders during mergers, amalgamations, and takeovers.

Increased influence of Shareholder by the virtue Legal and Statutory Development

In India, there has been a noticeable increase in shareholder activism, partly because of the extension of legal measures and rights available to shareholders. In this regard, the Companies Act of 2013 is a pillar that provides shareholders with a number of ways to impact the management of the firm. For example, shareholders may accept certain resolutions with an ordinary or special majority, and they may also choose which directors to install or dismiss. Listed firms are also subject to restrictions imposed by the Securities and Exchange Board of India (SEBI), which include requirements for the establishment of Stakeholders Relationship Committees and registration on the SEBI Complaints Redress System (SCORES) platform.10 This platform facilitates shareholders in lodging complaints and tracking their progress. With the enactment of progressive provisions within the Act, coupled with judicial interpretations and new SEBI regulations, shareholders now wield enhanced rights, empowering them to engage in more widespread and effective activism.

The Companies Bill of 2012 expanded shareholders' rights, and SEBI introduced changes in the listing agreement to safeguard minority shareholder interests in corporate restructuring. Specific measures targeted institutional investors, compelling mutual funds to play a more active role in corporate governance. Asset management companies are required to disclose their voting policies and exercise of voting rights, fostering a more deliberate approach to investments. The Ministry of Corporate Affairs has recognized the significance of shareholder activism and shareholder rights in implementing favorable changes to encourage increased shareholder participation. However, realizing the full potential of these reforms requires proactive engagement from stakeholders. Harnessing the benefits of these regulatory changes and encouraging different stakeholders to actively contribute will be essential for achieving better and improved corporate governance outcomes.


In conclusion, the landscape of corporate governance is undergoing significant transformation, fueled by the evolving dynamics between shareholders and companies in India. The expansion of legal safeguards and statutory developments, exemplified by the Companies Act of 2013 and interventions by regulatory bodies like SEBI, has empowered shareholders with enhanced rights and avenues for active participation. This newfound influence has spurred a notable increase in shareholder activism, underscoring the growing importance of shareholder engagement in shaping corporate decisions and fostering transparency and accountability. While these regulatory reforms signal progress towards bolstering shareholder protections and promoting responsible corporate conduct, their effective implementation hinges on proactive collaboration among stakeholders. As the corporate governance framework continues to evolve, sustaining momentum in empowering shareholders and promoting their interests will be vital for nurturing a culture of good governance and driving sustainable business practices in India's corporate landscape.


1 Murthy Committee 2003.

2 Namrata Singh and Manpreet Kaur, Shareholder activism and it' s influence on corporate governance practices in India, International Journal of Law,

3 Shareholder Activism in India, Advoc, O.P. Khaitan & Co.,,PAFs')%20in%20the%20nation.

4 Wells Fargo & Company 129 N.D. Cal 2017.

5 Disney and Fox Shareholders Approve Deal, Ending Corporate Duel, The New York Times,

6 Section 189 of Companies Act, 2013.

7 ExxonMobil Sustainability Report,

8 Suresh Kumar M V & Lakshmana Rao CH, Legal Protection of Minority Shareholders under Corporate Governance Process, International Journal of Current Science Research and Review,

9 Ibid 7.

10 Shareholder Activism in India, Advoc, O.P. Khaitan & Co.,,PAFs')%20in%20the%20nation.

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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