What is a Company’s Duty to its Shareholders?

The main company’s duty to its shareholders is to guarantee the exercise of its rights. Each person who owns shares of the company has rights and obligations in connection with this.

In general, there are several basic shareholder rights that the company is obliged to ensure: distribute the company’s profits, receive dividends and receive full information about the company’s activities.

The right of a participant to participate in the distribution of the company’s profits

The main purpose of any company is to make a profit. Shareholders exercise their right to receive income from holding corporate rights by receiving dividends. The decision on the procedure for distributing profits, the size, timing, and procedure for paying a part of the profit (dividends) is made by the higher management body – the general meeting of shareholders – only after a decision is made to approve the annual results of the joint-stock company.

The holders of common and preferred shares are entitled to receive dividends.

The same amount of dividends is accrued for each ordinary share of a joint-stock company. Dividends on ordinary shares may be paid only if the joint-stock company has made a profit based on the results of the year for which the dividends are to be paid.

The right of the participant to receive information about the activities of the company

It is irrefutable that the availability of complete or reliable information about the enterprise and its financial and economic activities is a very important point for making decisions on investing funds. If an enterprise is interested in increasing its authorized capital and expanding the circle of shareholders, then it must provide the general public with access to the maximum possible amount of information.

Recommendations for disclosing information about the activities of the company, among which information about:

  1. Results of financial and operating activities (financial statements and description of the business).
  2. Strategies and development prospects.
  3. Owners of significant blocks of shares, persons exercising control over the company.
  4. Officials of the issuer and their remuneration.
  5. Existing and predicted risks.
  6. Personnel policy.
  7. The structure and policy of management.
  8. Relations with buyers, suppliers, creditors, authorities, etc.
  9. Securities of the issuer.
  10. Operations of the enterprise with repurchased own shares.

The dissemination of information must be efficient, that is, to provide all users with timely, equal, and cost-effective access to it.

One of the key elements of reporting is the annual report. Each company forms it within the time limits specified by the regulations. However, this usually occurs at the end of the astronomical year.

The reporting period is a calendar year; for a newly created issuer, it may be less than 12 months and is calculated from the date of registration of the issue of securities until December 31 of the reporting year inclusive. The data of the annual report are submitted in documentary and electronic form personally to the general department of the relevant office of the Commission or by mail until September 30 of the year following the reporting one. Professional participants in the securities market, commercial banks, insurance companies, general investment institutions, asset management companies, and enterprises issuing bonds submit reports to the central office of the Commission; all other CJSCs submit reports to the territorial departments of the Commission at their location.