If you have a company, work for, or have business with one, you may want to know what corporate governance and shareholders are all about. Although many people think that those subjects are way too complicated, truth is that anyone can get a grasp of the basics of it.
Putting it simply, a shareholder is someone who owns a share of your company, and those people benefit from strong shareholder rights since they are able to take decisions on how the corporation is run once they are investing in it. Companies in Canada submitted to the Canada Business Corporation Act, have stated in it the rights of every shareholder and the responsibilities associated with being part of the governance of the corporation.
It is important to understand how a company’s governance works and what are the rights of the shareholders of a company in Canada. The Government of Canada states that any person can become a shareholder, so it is important that we look more into it if you are thinking of becoming a shareholder or owning a company with shareholders.
“Any ‘person’ can hold shares in a corporation. In addition to an individual, a ‘person’ can include a legal entity such as a trust, a mutual fund, or another corporation.”
– Government of Canada (Innovation, Science and Economic Development Canada), Share Structure and Shareholders
Corporate Governance and How It Works
Corporate governance has duties and responsibilities to follow as well. One of the biggest trends in corporate governance recently, especially since the COVID-19 pandemic, is sustainability. Sustainability does not end in environmental matters and responsibility for the consequences the company has on nature, it also tackles social and governance matters – or ESG. The company must be sustainable on all fronts to adapt to any situation.
Under the Canadian Business Corporation Act, the company’s governance needs to uphold something called the “duty of loyalty” where they only act in the best interests of the company. Another obligation is the “duty of care”, where they will exercise the care, skill, and diligence that a prudent person would be expected to exercise in a similar situation.
As of January 01 of 2020, changes to the Canadian Business Corporation Act made the board of governance also be required to comply with standards of diversity within their ranks of directors and members of senior management, and share this data with shareholders. Besides, they have to share board renewal initiatives, those disclosure requirements work with a structure of “comply or explain” – that is, companies must comply or explain and have a valid and plausible reason to not comply.
The Canada Business Corporations Act, as previously mentioned, also has laid out a few rights related to shareholders. It requires that shareholders have an annual meeting, and shareholders of a public company must also appoint an auditor every year. During those meetings, they can also elect (or dismiss) directors of the company.
A shareholder has the right to vote during their meetings as well if their shares have the right to vote. They can vote more than once if they have more than one share. As shareholders, they can approve by-laws and changes to them, and receive a share of the profits of the corporation – or a share of the property if a corporation is dissolved.
The access to data regarding the directors and the board of governance including corporate records and financial statements, and approve pivotal changes to the company – those which affect the business model or structure.
At the same time, shareholders also are bound to liability, but limited to the amount they paid for their shares and usually not for any debts the company may have.
Shareholders which do not want to keep being one can sell their shares to a third party or back to the company and do not need to notify the Corporations Canada of this. However, sometimes the transfer of shares (the selling of it) and the rights attached to them must comply with any conditions or restrictions associated with them, an example of this is if to transfer the shares you need approval from the directors. If the company becomes dissolved, then they cease to be a shareholder as well.
During the annual meetings, shareholders can also vote for resolutions, that is how they exercise their influence over the company’s decisions. Those resolutions can be ordinary, special, or unanimous. Ordinary resolutions are resolutions that only need more than half of the votes to pass, special resolutions require more than two-thirds of the votes to pass, and unanimous resolutions require all the shareholders to agree.
The board of governance and shareholders are intrinsically connected, and it is important to understand their relationship to ensure that the operations of the company are always running smoothly.
Whether you are a shareholder of a company or work at a company with many shareholders, it is always in the best interest of the company to have a team of corporate lawyer Calgary or a firm of corporate lawyers working together to ensure that it is complying with all necessary requirements of the law.