What are your rights as an investor in markets?
The Securities and Exchange Board of India (SEBI) has been working closely with the exchanges to constantly inform investors about their rights in equity markets. When you invest in the equity shares of a company, you become part owner of the company. Your demat credit is evidence that you are part owner of the company. You may have a very small proportion of ownership but you still have all the rights as a shareholder under the law. There are some rights that are available to the investor as an individual and some that are available as a group of shareholders. Let us look at individual rights first.
What are the individual rights that an investor enjoys?
- An investor is entitled to receive the credit of the shares in his / her demat account. These shares can either be purchased in the secondary market or from the IPO market. In both the cases, the investor will get demat credit for the shares in the demat account. Issue of fresh physical certificates and physical transfers have been stopped from December 05th 2018 and hence all share delivery has to happen in demat mode only.
- Shareholders are entitled to dematerialize their physical shares by opening a Demat account. This is of course subject to the company shares being admitted to dematerialization and unique ISIN allotted. Investors also have the option to rematerialize these shares and hold them in physical form, despite the limitations.
- As the shareholder of the company, you are entitled to receive copies of the Annual Report containing the balance sheet, the profit & loss account, the cash flow statement and the Auditor’s Report.
- The shareholder is also entitled to participate and vote in the annual general meetings (AGM) either personally or through proxy. Investors are also free to vote for or against any resolution based on their best judgement.
- Shareholders are entitled to receive dividends in due time once approved in general meetings and paid out of (net of DDT). Nowadays dividends are directly credited to the mapped bank account of the shareholder. Similarly, the shareholder is also entitled to receive automatic credit in the demat account for bonus issues, stock splits, mergers and other corporate actions.
- Shareholders, as investors in a company, are entitled to inspect the statutory registers at the registered office of the company by giving advance intimation to the company in which the investors hold shares.
- To receive an offer to subscribe to / participate in special voluntary actions like rights issues and buyback of shares. The shareholder has the full discretion to decide upon whether they want to participate in these issues or not.
- In case the shareholders are unhappy with certain aspects of a company’s functioning, the shareholders can apply to the Company Law Board (CLB) to call or direct the Annual General Meeting with requisite number of shareholders.
- Shareholders of a company are also entitled to inspect the minute books of the general meetings (AGMs and EGMs) and to receive copies of the same for their perusal and records.
- In extreme cases, the shareholders of the company are also entitled to legally proceed against the company by way of civil or criminal proceedings. In a worst case scenario, the shareholders, with requisite numbers, can also apply for the winding up of the company. In the event of any winding up or debt settlement by the company, the shareholder investors are entitled to receive residual proceeds from the process.
The above rights pertain to the investor as an individual. In addition, there are also rights that the shareholders as a group enjoy. Here are some of the key rights that can be exercised collectively.
- A minimum number of shareholders can jointly requisite for holding an Extra-ordinary General Meeting (EGM).
- A group of shareholders can also demand a poll or vote on any resolution that they are not entirely satisfied with.
- Shareholders as a group can also apply to CLB to investigate the affairs of the company where they have some doubts of grave misdemeanours.
- Minority shareholders above a certain threshold of ownership can also apply to the Company Law Board (CLB) for relief in cases of oppression of minority shareholders and / or mismanagement of the affairs of the company.
In addition to your investor rights as a shareholder of a company, you also have rights vis-à-vis the broker through whom you trade and the market overall. Such rights and obligations of investors are clearly laid out in the fine print of the Client-Broker agreement. Investors are advised to go through this fine print in detail to understand the exact nature of their rights and obligations as an active participant in the equity markets.