19.1: Shareholder Rights

Question 1

What are the basic rights associated with share ownership according to the Canada Business Corporations Act (CBCA)?

Answer 1

1. The right to vote at any meeting of shareholders.
2. The right to receive any dividend declared by the corporation.
3. The right to receive the remaining property of the corporation on dissolution.

Question 2

What is the significance of the right to vote for common shareholders?

Answer 2

The right to vote allows shareholders to make important decisions at the annual general meeting, including electing the board of directors, approving changes to corporate articles and bylaws, and voting on major corporate changes like mergers and acquisitions.

Question 3

Define ‘pre-emptive right’ and its significance for shareholders.

Answer 3

Pre-emptive right is the right of shareholders to maintain proportional ownership in a company when new shares are issued, preventing dilution of their ownership stake.

Question 4

How has the loss of the pre-emptive right affected shareholders?

Answer 4

The loss of the pre-emptive right means shareholders can be diluted when companies issue new shares without needing shareholder approval, reducing their control and oversight over corporate activities.

Question 5

What was the impact of AIG’s case on shareholder rights?

Answer 5

AIG’s case highlighted issues with shareholder rights as the Federal Reserve’s intervention to save the company bypassed common shareholders’ rights, showcasing how corporate control can shift without their consent.

Question 6

What are residual owners in the context of corporate finance?

Answer 6

Residual owners are equity holders who receive any remaining cash flows or property after all other commitments of the corporation have been satisfied.

Question 7

What is the significance of limited liability for shareholders?

Answer 7

Limited liability ensures shareholders are only liable for their initial investment, meaning they cannot lose more than they have invested, protecting them from the company’s debts beyond their shares.

Question 8

How do the rights associated with equity securities differ across categories or classes of equities?

Answer 8

Different categories or classes of equities may have varying rights regarding dividends, voting, and claims on assets. Some classes might prioritize dividends, while others might focus on voting rights.