June 19, 2025
Rights of Shareholders based on Shareholding Thresholds
Shareholders in India
enjoy foundational rights irrespective of shareholding—voting,
dividends, information, and legal remedies. Specific legal rights
and corporate influence increase at key ownership
thresholds: 10%, 25%, 50%, 75%, and 90%. Understanding and leveraging
shareholder thresholds is critical for promoters,
investors, and boards in shaping strategic outcomes.
Companies in India are incorporated and governed
in accordance with the provisions of the Companies
Act, 2013. Broadly, two principal forms of
corporate entities exist: private limited
companies and public limited companies.
These companies may be limited either by
shares or by guarantee.
While private limited companies outnumber public
companies in India, both types are subject to distinct
regulatory and operational frameworks that merit
close consideration.
Shares issued by companies generally fall into
two categories: equity shares and
preference shares. Both confer
certain rights upon the holders, including participation
in the profits and decision-making processes of
the company, subject to the terms of issuance and
statutory limitations. In contrast, instruments
such as debentures, bonds, warrants,
and other securities—despite being issued
by the same corporate entity—may not
carry statutory voting or ownership rights,
and thus may not confer participatory interest in
the governance of the company although contractually
they may exercise certain rights.
Under Section 3(1) of the Companies
Act, 2013, the minimum number of shareholders
required for incorporation is prescribed as follows:
One shareholder for a
One Person Company; Two shareholders for a Private Company;
and Seven shareholders for a Public Company.
Corporate governance today is increasingly shaped
by shareholder activism, which
plays an important role in compelling management
to adopt practices that align with shareholders’
interests. The rights and remedies available to
shareholders—particularly in listed companies—are
not only governed by the Companies Act but are also
supplemented by regulatory frameworks issued by
the Securities and Exchange Board of India
(SEBI).
The Companies Act, 2013 mandates shareholder
approval for specific transactions and
decisions, thereby reinforcing their participatory
role. Moreover, shareholders have the statutory
right to initiate class action suits
against the company, its directors, and certain
advisors in cases involving misconduct or mismanagement.
In addition, shareholders enjoy rights to
exit the company under defined conditions,
and to initiate legal proceedings to prevent oppression
and mismanagement. Shareholders of listed
public companies are further empowered
through SEBI regulations, which provide broader
mechanisms for enforcement and redressal. For instance,
listed entities are required to facilitate
electronic voting (e-voting) and
establish a Stakeholders Relationship Committee
to address shareholder grievances and enhance transparency.
These rights vary depending on the proportion of
shares held by a shareholder or a group of shareholders.
This article breaks down general shareholder
rights and the specific powers accorded to shareholders
at critical thresholds: 10%, 25%, 50%, 75%, and
90%.
Distribution of Rights Based
on Shareholding in a Company:
The Companies Act, 2013 ushered in a
transformative era for corporate governance in India,
with a heightened focus on the rights and participation
of shareholders. It provides a structured legal
framework to ensure shareholder interests are protected
and that varying degrees of shareholding correspond
to different levels of influence in corporate decision-making.
This section examines the statutory rights of
shareholders based on specific ownership thresholds,
highlighting how their powers evolve as their shareholding
increases.
Foundational
rights of all shareholders
Irrespective of the quantum of shares held, the
Companies Act, 2013 ensures that every
shareholder—whether holding a single share
or a significant percentage—enjoys a set of
core rights that safeguard their legal and economic
interests. These foundational rights are essential
to the principles of transparency, accountability,
and fair participation in corporate governance.
1. Voting rights
Under Section
47, equity shareholders have voting
rights proportionate to their holdings (one
share = one vote). They can vote on matters
such as appointment/removal of directors, approval
of financials, dividends, and corporate resolutions. Preference shareholders
vote only on resolutions directly affecting
their rights.
2. Right to dividend
Shareholders are entitled
to dividends declared by the company, in proportion
to their holdings (Section 123). Non-payment of declared
dividends attracts penalties under Section
127.
3. Right to information
Right to receive notice,
agenda, and explanatory statement for general
meetings (Sections 101–102)
and financial statements and auditor’s
report (Section 136). Access to statutory
registers and minutes (Sections 88,
119). For listed companies,
continuous disclosures under SEBI (LODR)
Regulations, 2015 also apply.
4. Participation in meetings
Shareholders can attend,
speak, and vote in Annual General Meetings (AGMs)
and Extra-ordinary General Meetings (EGMs)
under Sections 96 and 100. Electronic voting available
in listed and certain unlisted companies under
Section 108.
5. Right to transfer shares
Share transfer rights
governed by Section 56, subject
to Articles of Association
and applicable SEBI and Depositories Act norms. Restrictions (e.g.,
in private companies) must be reasonable and
lawful.
6. Right to legal remedies in case of
Oppression
and mismanagement (Sections
241–242) – subject to thresholds. Class actions
against company, directors, or advisors (Section
245). Fraud/investigation
applications under Sections 210–213.
Shareholders
holding at least 10% of the shares
Holding 10% or more of a company’s share
capital gives shareholders the following key powers:
1. Requisitioning an EGM (Section 100):
Shareholders with at least 10% of the paid-up share
capital can requisition an EGM if the Board fails
to act.
2. Proposal of Resolutions (Section 111 &
115): They can propose resolutions with
special notice for matters like the removal of directors.
3. Demand Poll on Resolutions:
Shareholders holding at least 10% of the voting
power can demand a poll at general meetings under
Section 109.
4. Oppression and Mismanagement (Sections
241–242): Under Section 241 of the
Companies Act, a minimum of 10% of the shareholders
(or 100 members, whichever is less) can approach
National Company Law Tribunal (NCLT)
alleging oppression or mismanagement.
These rights collectively empower minority shareholders
to demand transparency, seek redress, and hold management
accountable.
Shareholders
holding more than 25% of the shares
A shareholding exceeding 25%
confers a powerful veto over
special resolutions, which require
approval by shareholders holding at least 75% of
voting rights (Section 114).
Such shareholders can block critical decisions
involving:
In addition to the rights available to 10% shareholders,
this veto right provides an important check on unilateral
action by majority shareholders and ensures that
decisions are not taken unilaterally.
Shareholders
holding more than 50% of the shares
Shareholders owning 50% or more
of voting rights (typically referred to as
simple majority) can effectively
control the outcome of ordinary resolutions
under Section 114(1).
Key powers include:
Appointment
and removal of directors (Section 152), Approval of
financial statements and reports (Section 129), Declaration
of dividends, General business
matters (e.g., appointment of auditors,
acceptance of annual accounts).
While they cannot unilaterally alter the company’s
constitutional documents or undertake major reorganizations
(which require special resolutions), 50% shareholders
hold decisive control over routine operations and
board composition.
Shareholders
holding 75% or more of the shares
Crossing the 75% threshold (represents
a supermajority) empowers shareholders
to pass special resolutions, which
are required for:
Amendments
to the MOA and AOA (Section 13 and 14), Approval of
mergers, demergers, and other schemes under
Sections 230–232, Alteration
of share capital (Section 61), Voluntary winding
up (subject to other conditions), Change in the
registered office (inter-state), Change of name Alteration of articles Private placement /
preferential issue of shares Buy-back of shares
or specified securities Removal of auditors
Additionally, they can reconstitute the board
through special resolutions under Section 169,
ensuring alignment with strategic interests. This
level of control allows shareholders to shape the
company’s long-term direction, restructure
governance, and consolidate authority with limited
opposition.
Shareholders
holding 90% or more of the shares
This is often referred to as "squeeze-out"
territory. Shareholders with 90%
or more of issued capital or voting rights
wield near-complete control over
the company.
Key rights include:
Compulsory
Acquisition of Minority Shares (Sections 235–236):
Majority shareholders may initiate the squeeze-out
of minority shareholders at a valuation certified
by a registered valuer. Delisting in
Listed Companies (SEBI Delisting Regulations):
This threshold is typically required for the
acquirer to proceed with delisting from stock
exchanges. Unopposed Resolution
Passage: All ordinary and special resolutions
can be passed unilaterally, effectively privatizing
governance and operational decision-making.
At this stage, the company is often transformed
into a closely-held or family-controlled enterprise,
with negligible interference from other shareholders.
Conclusion:
Shareholder rights form the backbone of corporate
governance in India, designed to ensure transparency,
accountability, and fair participation in decision-making.
The Companies Act, 2013, along
with SEBI regulations for listed
entities, lays down a comprehensive framework that
protects shareholders across the board—whether
they hold a small stake or a controlling interest.
Shareholding thresholds in India confer not just
numerical control, but legal leverage.
Strategic investors, promoters, and institutional
shareholders must therefore consider the legal ramifications
of each threshold—not merely from a governance
perspective, but as part of a broader corporate
strategy. While all shareholders enjoy
certain basic rights—such as voting, receiving
dividends, and access to key information—the
degree of influence naturally increases with shareholding.
Indian law has carefully structured these rights:
at 10%, shareholders can call for an extraordinary
general meeting; at 25%, they can block special
resolutions; and beyond 75%, they gain significant
control over strategic matters. A 90% threshold
opens the door to complete control, including actions
like minority buyouts.
In today’s dynamic corporate environment,
where investor engagement is increasingly active,
it is vital for shareholders to not only understand
their rights but also how to enforce them effectively.
Likewise, boards and promoters must remain mindful
of these entitlements to avoid potential disputes
and foster a culture of transparency and trust.
For companies, understanding these thresholds is
essential to designing governance structures. For
investors, particularly in private or closely held
companies, negotiating rights based on shareholding
levels is critical to protecting long-term interests.
Ultimately, a clear grasp of shareholder rights—both
foundational and based on holding thresholds—is
essential for any stakeholder looking to participate
meaningfully in corporate India. Whether you are
an investor, advisor, or promoter, these rights
are not just legal provisions—they are tools
to help shape a company’s future responsibly
and sustainably.
Authors:
–
Maulin Salvi
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