Now that you are a shareholder in a respectable bank, will you have special access to the bank manager for all your transactions, or will you have a say in the day to day running of the bank? What about your shareholding in the airline company, does that entitle you to free holiday tickets to a destination of your choice? Maybe not, but you do have other rights as a shareholder, which you can exercise to achieve maximum benefit from investing in shares.
Many investors who buy shares are unaware of the rights that come with stock ownership. Whereas specific rights depend on the type of shares, the following are the general shareholders’ rights and privileges:
Voting Power on Major Issues
This includes electing the Board of Directors as well as proposals for fundamental changes affecting the company such as mergers, liquidation corporate actions or changes to the articles of incorporation. Voting takes place at the company’s Annual General Meeting (AGM). If you can’t attend, you can do so by proxy (nominate someone to attend and vote on your behalf). The nomination form for attendance by proxy is sent to you by the company, along with the notice for the AGM. In case you can’t attend the AGM, fill in the nomination form and send it back to the company before the deadline stipulated on the form.
Ownership in a Portion of the Company
Common/ ordinary shareholders own a piece of something that has value. As the assets of the company generate profits, and the profits are reinvested in additional assets, shareholders see a return in the form of increased share value when stock prices rise. In the event of a company liquidation, where creditors, bondholders and preferred shareholders are paid first, common shareholders can be paid thereafter.
Shareholders have a claim on any profits a company pays out in the form of a dividend. Management of a company essentially has two options with profits:they can be reinvested back into the firm (hopefully increasing the company’s overall value) or paid out in the form of a dividend. You, as a shareholder, don’t have a say in what percentage of profits should be paid out – this is decided by the Board of Directors. However, whenever dividends are declared, common shareholders are entitled to receive their share. Preferred shareholders (currently non-existent in Uganda’s stock market) are guaranteed a fixed dividend whether the company makes a profit or not.
Right to Transfer Ownership
Right to transfer ownership means shareholders are allowed to trade their stock on a stock exchange freely. There is no restriction by the company on when, how and why you should sell your shares. In case you wish to sell your shares, please visit a broker/deader licensed by Capital Markets Authority (CMA) , the list of which can be found at the CMA office or website; www.cmauganda.co.ug
Note that the price of shares listed on the stock exchange is determined by the forces of demand and supply, therefore share prices may go up or down.
Opportunity to Inspect Corporate Books and Records
This opportunity is provided through a company’s public filings, including its annual report. Nowadays, public companies are required to make their financials public through the mass media. If you notice a discrepancy or anything unusual about the company’s accounts or other documents, it is important to notify the CMA immediately.
The Right to Participate in Corporate Actions
When a company undertakes any corporate action (e.g rights issues, bonus issues), the existing shareholders also have a right to purchase or receive the new shares as applicable. In case of a rights issue, each shareholder can decide to purchase part or all of the new shares, or sell off part or all his/ her rights. In the case of a bonus issue, bonus shares are automatically credited to the shareholder.
Suing for Wrongful Acts
Shareholders have the right to sue the company for any wrong doing on their behalf or the company. Examples include when a company significantly overstates or understates its earnings, thereby giving shareholders and investors an erroneous view of its financial health.
The stock market in Uganda is regulated by the CMA whose overall objective is investor protection. Though the CMA has put in place laws and regulation to ensure market efficiency and investor protection, it is essential to know your rights as a shareholder. Those who fully understand their rights are much less susceptible to additional risks.