Interesting responsibilities a company has to their shareholders

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Shareholders play a crucial role in the success and operation of a company; they have confidence in your business model and therefore invest capital whilst also risk taking a loss. Without them, many things would not be possible, and therefore, it’s important a company looks after your their shareholders and ensures they are fulfilling their responsibilities to them. A shareholder is investing both their time and money in a company so they should also have an understanding of their rights and duties. This Business Kitz blog will help identify responsibilities a business has to its shareholders and the benefits of being a shareholders.

What does a company owe to shareholders?

A company’s responsibilities towards shareholders all depend on the class of the shares, whether the company is public or proprietary and what the company’s constitution involves.

However, the main responsibilities a company has towards its shareholder are:

1. To ensure the safety of their shareholder’s capital investment 

The company must act responsibly and appropriately with shareholder’s investments. To be able to successfully run and expand a company, that company must have its shareholders’ trust and confidence that they are going to be responsible with their investments and that the investment will be used to improve the company to increase that capital. Shareholders invest in companies they believe they are going to have a positive return with and won’t lose money on.

2. To provide equal opportunity for all shareholders to have the chance to participate in the management of the business as outlined by the law

A shareholder will have the opportunity to apply and participate in the company’s management. It is completely up to the shareholder to determine their level of involvement but it is the company’s responsibility to ensure they have an equal opportunity.

3. To provide a fair and satisfactory return on shareholder’s investments

Each company will have a process for calculating a shareholder’s return and this should be updated regularly to reflect the status of the business. To keep stakeholders satisfied, it’s the responsibility of the company to ensure they are receiving an appropriate return and this will keep their shareholders satisfied and happy.

4. To provide accurate regular updates on the businesses finances and transactions

It’s the responsibility of the business to provide regular updates to its shareholders on the progress of the business. These updates need to be correct and transparent by including positive and negative information about the business, as shareholders have the right to know the status of the company.

5. To maximise the value of the capital investment by appropriately utilising resources

A company should always have their shareholder’s best interests as their top priority and this includes ensuring they maximise the value of their shareholder’s capital investment. Utilising a shareholder’s resources is an effective way to increase the initial capital investment. Making this a priority is a great way to maintain a good relationship between the investors and the company.

Becoming a shareholder is an exciting opportunity that can promote a lot of individual revenue if the company continues to grow. If you require further advice about this process as a business owner or shareholder, our sister company, Legal Kitz, can assist! We provide a FREE 30-minute consultation to set you in the right legal direction. Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us by calling 1300 988 954.