Wednesday, November 11, 2015

Shareholders don't own a company

We are all brought up to think that shareholders are "owners" of a company. John Kay points out in a delightful piece that that is not the legal position. They merely have some rights in the company.
If I own an object I can use it, or not use it, sell it, rent it, give it to others, throw it away and appeal to the police if a thief misappropriates it. And I must accept responsibility for its misuse and admit the right of my creditors to take
a lien on it.

But shares give their holders no right of possession and no right of use. If shareholders go to the company premises, they will more likely than not be turned away.
They have no more right than other customers to the services of the business they “own”. The company’s actions are not their responsibility, and corporate assets cannot be used to satisfy their debts.
Shareholders do not have the right to manage the company in which they hold an interest, and even their right to appoint the people who do is largely theoretical. They are entitled only to such part of the income as the directors declare as dividends, and have no right to the proceeds of the sale of corporate assets — except in the event of the liquidation of the entire company, in which case they will get what is left; not much, as a rule.
Of 11 tests of ownership Mr Honoré (a legal scholar)put forward, the relationship between
a company and its shareholders satisfies only two, and these rather minor. Three are satisfied in part; six are not met at all.

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