14. Shareholders' rights and engagement Flashcards
Define the different types of shareholders
- Member – a person or organisation entered into the Register of Members of a company as a holder of shares
- Beneficial shareowner – a person or owner that ultimately owns a share in a company – shareowner may not be a ‘member’ of the company
- Nominee/custodian – a person or organisation that holds shares as a ‘member’ on behalf of another person/organisation who may be the ultimate owner
- Retail shareholder – individual investors who buy and sell securities for their personal account and not for another company. Individual registers shares in the name of a nominee belonging to a stock broking firm, e.g. FreeTrade
- Institutional shareholder – a person or organisation that trades securities in large quantities or monetary amounts on behalf of multiple beneficiaries
What do shareholders acquire their rights from?
- Legislation – Company laws and securities laws
- Case law
- Corporate governance codes and principles such as the OECD Principles of Corporate Governance
- Articles of Association
- Resolutions passed at general meetings
- Shareholder agreements
- Equal Treatment – Principle 5 of Listing Rules
What rights do shareholders have?
- Share in the profits as per dividend policy
- Receipt of information
- Attend meetings and vote – UK law – if 5% voting shares > call GM or propose a resolution to be voted on at the AGM
What are the types of market abuse?
o Engaging or attempting to engage in insider dealing, recommending that another person engage in insider dealing, or inducing another person to engage in insider dealing. Use of inside information and use of that information to directly or indirectly acquire or dispose of financial instruments
o Unlawfully disclosing inside information
o Engaging or attempting to engage in market manipulation – placing market orders which give false or misleading signals as to the supply or demand or disseminating information through the media, including internet rumours, which give false or misleading signals
o Insider dealing: criminal offence + civil – 3 types:
Dealing in securities on the basis of inside information;
Encouraging another to engage in such dealing; and
Disclosing inside information otherwise than in the proper performance of one’s employment, office or profession
To be found guilty of inside dealing - a defendant must be…
defendant must be an individual, who has inside information and must know that such information is inside information. The information must have been obtained by the defendant as a director, employee or shareholder concerned or directly or indirectly from such a person.
What do listed rules say about the disclosure of inside information?
Listed companies are required to inform the public as soon as possible if inside information via RNS ASAP – co-sec is often involved in this – can delay if immediate disclosure is likely to prejudice their legitimate interests. This includes circumstances where issuer is conducting investigations whose outcome would be jeopardized by immediate disclosure. Any such delay must not mislead the public and the issuer must be able to ensure the confidentiality of this information.
What should an insider list include?
- Identity of any person having access to inside information
- The reason for including that person in the insider list
- The date and time at which that person obtained access to inside information
- The date on which the insider list was drawn up
- One section separated for ‘permanent insiders’
What is a PDMR and PCA?
A PDMR is defined as a person within an issuer who is;
• A member of the administrative, management or supervisory body of that entity (e.g. a director); or
• A senior executive who is not a director but has regular access to inside information relating directly or indirectly to the issuer and power to take managerial decisions affecting its future developments and business prospects
A PCA is defined as: • A spouse • A dependent child • A relative • A corporate body, trust or partnership – managed by PDMR or family member
When should PDMRs and PCAs notify the issuer and the FCA of any dealings in its traded securities?
no later than three business days after the date of the transaction if a transaction has reached EUR 5,000. On receipt, issuer must make announcement within 2 working days.
What is a closed period?
PDMRs are prohibited from conducting any transactions in the company’s securities on their own account or for a third party during a closed period of 30 calendar days before the announcement of the year-end results or any interim financial report. In certain exceptional circumstances, this is allowed e.g. if director is in severe financial difficulty
What does dilution cause?
- Ownership percentage of voting control is reduced
- Per-share earnings may be cut when disbursed among a greater number of shareholders
- Share values may fall depending upon proceeds received from selling more shares to investors
What protections does the CA2006 provide for shareholders against dilution?
- Requirement for directors to be authorized to allot shares in the company by shareholders – usually via AGM
- Pre-emption rights
- Long-term incentive schemes
Tunnelling is when the values of shares held by a shareholder is reduced and caused by what?
- The company’s assets are sold or transferred to third parties at non-market prices
- Value-destroying acquisitions and investments are made to help related companies
- Off-balance sheet loan guarantees are made
- Corporate opportunities are exploited by related companies and not the company itself
- The articles are amended to give priority to one set of shareholders over another
What is the purpose of the Stewardship Code?
Enhance the stewardship role that asset owners and service providers play in relation to UK traded companies and by requiring signatories to the Code is to issue an annual Stewardship Report and encourages better stewardship behaviour.
The Stewardship Code operates on what basis?
The Code operates on an ‘apply and explain’ basis so a key purpose of the annual report is for signatories to explain how they have applied the Principles of the Code over the last 12 months.
