KCB revision - SLIDE DECK 12 - Shareholder rights Flashcards
Summarise the different types of shareholders definitions.
MEMBER – a person or organisation entered into the Register of Members of the company as the holder of the company’s shares.
BENEFICIAL SHAREHOLDER – a person or organisation that ultimately owns a share in a company.
NOMINEE / CUSTODIAN – a person or organisation that holds shares as a ‘member’ on behalf of another person or organisation
RETAIL SHAREHOLDER - individual investors who buy and sell securities for their personal account, and not for another company or organisation. The individual usually registers the shares in the name of a nominee belonging to a stock broking firm, e.g. Barclays Nominees Limited.
INSTITUTIONAL SHAREHOLDER – a person or organisation that trades securities in large quantities or monetary amounts on behalf of multiple beneficiaries. Examples of institutional investors are banks, insurance companies, retirement or pension funds,
What are the sources of shareholders powers and rights?
- Legislation - company law / securities law
- Regulations - Listing rules, DGT rules, Takeover code
- Case law - common law rules when legislation is silent
- Corporate governance codes - UKCG Code
- Articles of Association
- Resolutions passed at general meetings
- Shareholder agreements
What rights do shareholders have?
- Ownership and the transfer
- Equal Treatment
- Share in the profits
- Receipt of information
- Attend meetings, request meetings and vote
- Enfranchising indirect shareholders
What are the common abuses of shareholders rights?
- Market abuse and insider dealing
- Dilution
- Tunnelling
- Related Party Transactions
Summarise what Market Abuse is.
Market abuse
Civil offence Under s. 123 of the Financial Services and Markets Act 2000 (FSMA)
There are three types of market abuse
- Engaging or attempting to engage in insider dealing
- Unlawfully disclosing inside information.
- Engaging in or attempting to engage in market manipulation
Summarise what Market Abuse is.
Market abuse
Civil offence Under s. 123 of the Financial Services and Markets Act 2000 (FSMA)
There are three types of market abuse
- Engaging or attempting to engage in insider dealing
- Unlawfully disclosing inside information.
- Engaging in or attempting to engage in market manipulation
Summarise what dilution is.
Dilution
The effect of dilution is ownership percentage of voting control is reduced.
The CA2006 provides protections for shareholders against dilution:
Requirement for directors to be authorised to allot shares in the company by the shareholders.
Pre emption rights
Shareholders have the right to approve long-term incentive schemes
Summarise what tunnelling is.
Tunnelling
Occurs when the value of the shares held by a shareholder is reduced, arising from:
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;
the articles or capital structure of the company is amended to give priority to one set of shareholders over another;
The Listing Rules (Chapter 10) : ‘Significant Transactions’, requires listed companies to notify their shareholders of certain transactions of more than 5% of the company’s value and where the transaction value is more than 25% a shareholder vote is required.
Summarise what related party transactions are.
Related party transactions - A transaction between a listed company and a related party
A related party is defined as:
‘A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel. (International accounting standards 24)
An entity is related to a reporting entity if, among other circumstances, it is a parent, subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party.’ (IAS 24)
a person who is (or was within the 12 months before the date of the transaction or arrangement) a substantial shareholder. (Listing Rules)
a person who is (or was within the 12 months before the date of the transaction or arrangement) a director or shadow director of the listed company or its subsidiary.
What is inside information?
Information relating to the shares of a PARTICULAR COMPANY which is SPECIFIC OR PRECISE and would be likely, IF MADE PUBLIC, to have a SIGNIFICANT EFFECT ON THE PRICE OF SHARES.
What legislation makes INSIDER DEALING a criminal offence?
Part V of the Criminal Justice Act 1993 makes insider dealing a criminal offence
The criminal offence of insider dealing may take one of three forms:
1. dealing in securities on the basis of inside information;
2. encouraging another to engage in such dealing; and
3. disclosing inside information otherwise than in the proper performance of one’s employment, office or profession.
What are defences to insider dealing?
Defences to Insider dealing includes:
1. that the defendant did not, at the time of the disclosure, expect any person to deal because of the disclosure or
2. alternatively that he did not expect any such dealing to result in a profit attributable to the price sensitivity of the information.
3. that the defendant would have dealt in the same way even if he had not had the information.
What is an insider list?
Listed companies should maintain a LIST OF PEOPLE WHO HAVE ACCESS TO INSIDE INFORMATION and make that list available to FCA on request.
The insider list must include:
the 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; and
the date on which the insider list was drawn up.
Companies must take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.
They must also establish effective arrangements to deny access to inside information to persons other than those who require it for the exercise of their functions within the issuer.
How should listed companies disclose inside information?
Listed companies are required to inform the public as soon as possible of inside information though a Regulatory Information Service (RIS)
If the RIS provider is not open for business, they must distribute the information as soon as possible to at least two national newspapers and two newswire services operating in the UK.
Issuers are allowed to delay the disclosure of inside information where immediate disclosure is likely to prejudice their legitimate interests.
How should listed companies disclose inside information?
Listed companies are required to inform the public as soon as possible of inside information though a Regulatory Information Service (RIS)
If the RIS provider is not open for business, they must distribute the information as soon as possible to at least two national newspapers and two newswire services operating in the UK.
Issuers are allowed to delay the disclosure of inside information where immediate disclosure is likely to prejudice their legitimate interests.
