Section 47 Of Companies Act 2013: Voting Right
Updated: Jun 21
What is Voting Right?
The right to vote on certain business matters is a significant right of shareholders. Shareholders typically have the opportunity to vote on board of director elections as well as on projected corporate changes, such as a shift in the company's mission and goals or structural changes. The Companies Act of 2013 (the "2013 Act") defines "voting right" as "the right of a member of a company to vote in any meeting of the company or via postal ballot"1. Essentially, voting rights are the decision-making powers granted to all members of a corporation to approve or disapprove resolutions presented to the corporation during a general meeting. The right of shareholders to vote in a general meeting of the company is proportional to the number of shares held by the shareholders.
The voting rights of shareholders in a company are governed by Section 47 of the Companies Act 2013. The following are some of the key provisions of the Companies Act. Every member of a corporation that is limited by shares and has equity share capital has the right to vote on every resolution concerning the firm. The voting right on a poll will be expressed as a percentage of his part of the company's paid-up equity share capital. As a result, if a shareholder possesses 51 percent of the company's paid-up equity, he will be able to exercise majority control over it.
The kind and category of the shares issued by the corporation and subscribed by the shareholder can affect voting rights. Every equity shareholder and preference shareholder of a firm has voting rights under Section 47 (Voting Rights)2 of the Act. Voting rights may be based on a "one person, one vote" basis or on the paid-up value of shares, i.e., each member has just one vote when voting by show of hands, whereas voting rights are proportional to a member's shareholding in the company's paid-up share capital when voting by poll. It is important to highlight that the shareholder's right to exercise such voting rights is not automatic.
As upheld by the Securities Appellate in Sharad Doshi vv. Adjudicating officer a person will be able to exercise his voting rights only if his name appears in the company's register of members will a person holding voting shares be able to exercise that voting right. As a result, having a share certificate is not enough to exercise the voting rights associated to a share; the holder's name must also be recorded in the company's register of members. Regardless of the magnitude of the equity/preference shareholder's holding, a firm cannot refuse partial or whole voting rights to such shareholders through its articles of association or otherwise.
Furthermore, where the memorandum of association or articles of association states, Section 47 of the 2013 Act is applicable to private companies. As a result, private companies can specifically exclude the operation of Section 47 of the 2013 Act by including the exclusion in their articles of association.
Restrictions on Voting Rights
The voting rights of a shareholder may be restricted by the articles of association of a firm. Most firms' articles of association, for example, will place a restriction on the voting rights of shares on which a call or one-time sums that are currently due have not been paid. Preference shareholders are only allowed to vote on resolutions that directly affect their rights; however, Section 47(2) of the 2013 Act removes this restriction and allows preference shareholders to vote on any resolution brought before the company in general meetings if the dividend on their preference share has been unpaid for more than two years.
Unpaid Share Capital
if no part of that amount has been called up, a corporation may, if so authorized by its articles, acknowledge from each member the entire or a portion of the sum remaining unpaid on any shares held by him. A member of a corporation limited by shares will not have any voting rights in relation to the amount paid in accordance with subsection (1) until that amount is called up.
Pledge or Attachment
Despite the piece of proof that the shares have been rendered definite by the linked shareholders of their shares have been integrated or a receiver has been chosen with reference to their shares, the voting right of shareholders as determined by section 47 remains vital. Regardless of the undertaking or attachment of his shares, shareholders can file an application for a meeting and vote at a meeting under section 100 of the Act, as well as choose a receiver.
Conducting the Voting process
The voting rights associated with shares are voting rights at the company's general meetings, specifically at meetings of the shareholders, to a lesser extent than meetings of the directors. There are two different ways to vote at general meetings. A show of hands is used to settle a variety of issues. Regardless of the amount of shares held, every shareholder will have one vote. It is a useful practice for passing routine resolutions if there is no (or very little) opposition, but it is not a reflection of individual shareholders' actual voting power. For this to be completed, a poll should be conducted, in which the specific votes of each shareholder voting are counted.