Section 47 of Companies Act 2013. Voting Rights

“(1) Subject to the ¹[provisions of section 43, sub-section (2) of section 50 and sun-section (1) of section 188], —

(a) every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.

(2) Every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares and, any resolution for the winding up of the company or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shall be in proportion to his share in the paid-up preference share capital of the company:

Provided that the proportion of the voting rights of equity shareholders to the voting rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares:

Provided further that where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.”

Decoding Section 47 of Companies Act

The section 47 of the Companies Act,2013 talks about three different sections to which it is connected.

Relation with Section 43:

“The share capital of a company limited by shares shall be of two kinds, namely: —

(a) equity share capital—

(i) with voting rights; or

(ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and

(b) preference share capital:

This section specifies that the voting rights resides with the equity shareholder.

Relation with Section 50 (2):

Company to accept unpaid share capital, although not called up

“(2) A member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him under sub-section (1) until that amount has been called up.”

Relation with Section 188(1):

Related party transactions — “(1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to…”

The right of voting came into picture so that the ownership of the shareholders should not remain confined on the paper only and their voices can be heard too. The section 47 of the Act works as the pillar of shareholder’s democracy.

The Essence of Section 47 of Companies Act: A Symphony of Votes

The section clearly specifies that every member of the company that are holding the equity share capital of the company shall have the right to vote on every resolution that is placed before the company. It also stated the value of the votes that are casted by each member of the company. The value of the vote is proportional to their shareholding. This implies that the more share you own, the more you will be heard in key decision that has the potential to affect the company’s course.

The member of a company limited by shares and holding any preference share capital shall have the right to vote only on these following

resolutions that are placed before the company which directly affect the rights attached to his preference shares, and
any resolution for the winding up of the company,
for the repayment or reduction of its equity or preference share capital

His voting right on poll shall be in proportion to his share in the paid-up preference share capital.

Relation between Voting rights and Paid-up capital:

The section 47 also states that, “the voting rights of equity shareholders and preference shareholders should be of the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares.”

It can simply be expressed as: –

Proportion of equity shareholder and preference shareholder in voting right = Proportion of paid-up capital in equity share bears and the preference shares.

Voting right -> Equity shareholder : Preference shareholder :: Equity share bears : Preference shares –> Paid-up capital.

The Variations that follows:

Differential Rights within Classes:

Corporations can issue several classes of shares with differing voting rights associated with them. To prioritize their dividend claims, preference shares, for instance, frequently include limited voting rights.

Weighted Voting Rights:

Numerous companies give voting rights to certain shareholders while retaining control over the majority through the use of a weighted voting rights structure, in which each share has a distinct voting weight.

Proxy Voting:

If in any case the shareholders are not able to attend the resolution to cast their votes then the Companies Act provides for the process of voting on behalf of the shareholders through Proxy.

Important Caveats: Balancing Power and Fairness

The section 47 of Companies Act 2013 provides enormous flexibility to the shareholders and their rights. However, along with the flexibility the safeguarding of these rights are equally important to ensure fairness.

Following protections are provided under this Act: –

Protection of Minority Shareholders:

The Act safeguards minority shareholders’ interests by prohibiting an undue concentration of voting power.

Disclosure Requirements:

To promote generosity, companies are required to reveal pertinent information regarding the voting rights associated with various share classes.

Electronic Voting:

To make participation easier for the shareholders, the Act compels listed firms and major companies to offer electronic voting choices.

The Ripple Effect of Voting Rights under Section 47 of Companies Act

The impact of voting rights is casted on various stake holders with respect to the company. Some of the stakeholders on which the direct effect of voting right will occur are as follows: –

Shareholders:

The shareholders has the right to take decisions of the company because they are the owners of the company.

Few Decisions that they are part of are:-

Management:

Merger and Acquisition matters.
Dividend payments.
Appointment of Board of directors.

The direct relation between the investors and the corporation is maintained by the management of the corporation. So they are directly questionable to the shareholders and investors.

Investors:

Voting rights arrangements are important to understand for the investors because they affect risk-return calculations made in investment decisions.

Regulators:

The regulators safeguard all stakeholders, uphold fair and open voting procedures, and encourage sound company governance.

In Conclusion: Empowering Voices, Shaping Futures

The Section 47 Companies Act, 2013, provides the power to vote to shareholders. It lays the groundwork for a participative and accountable corporate ecosystem. Despite the complexities, both shareholders and stakeholders can navigate the constantly changing landscape of corporate governance by understanding the core principles and recent developments.

FAQs

Q1) What is voting rights in share market?

The right of voting came into picture so that the ownership of the shareholders should not remain confined on the paper only and their voices can be heard too.

Q2) How many shares do you need to have voting rights?

Any shareholder even with one share only, has the right to vote in resolutions.

Q3) From where someone can buy voting shares?

The Voting shares can be purchased by the investors in publicly traded companies.

Q4) Which shares have fewer voting rights?

Preference share capitals shareholders have fewer or no voting rights in comparison with equity share capital shareholders.

Q5) Which stock has voting rights?

All the investors of the corporation don’t get the right to vote in the matters of the company. The specific stock holder that gets the right to vote in company matter are the Equity shareholders.

Q6) How to calculate voting rights in a company?

The value of the vote is proportional to their shareholding. This implies that the more share you own, the more you will be heard in key decision that has the potential to affect the company’s course.

Q7) What are the voting rights in Pvt Ltd company?

The voting right of a shareholder on the poll shall be in proportion to his share in the paid-up preference share capital.

Q8) What happens if you don’t vote your shares?

In order to make sure their voice is heard in meetings when they are unable to attend, shareholders might choose a proxy to vote on their behalf.

Q9) Do shareholders vote on CEO?

The section clearly specifies that every member of the company that are holding the equity share capital of the company shall have the right to vote on every resolution that is placed before the company.

Q10) Do voting shares get dividends?

All the investors of the corporation don’t get the right to vote in the matters of the company. The specific stock holder that gets the right to vote in company matters are the Equity shareholders. However the Equity shareholders gets the dividends but they cannot claim it before the preference shareholders. Therefore, we can say that the voting shares do get the right to vote.

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Section 47 of Companies Act 2013

Aayush Aman

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