Assignment no 2

Subject
Corporate governance
Topic
History of corporate governance
Submitted to
MAM Mehwish kaleem
Submitted by
Irtaza Ansar
Roll no
10012720-007
Section
B

UNIVERSITY OF GUJRAT
Definition of Shareholders:

Shareholder is a person who owns shares in a company. He is considered as

a member of the company and its co-owner with certain rights and
obligations.

Types of shares:
Normally there are two types of shares.
1. Ordinary shares(common stock)
2. Preference shares(preferred stock)

Ordinary shares:
Salient features of ordinary shares are as follows.
1. Permanency
Amount received from sale of ordinary shares can not be refunded by
company to its shareholders during its lifetime. These can be paid only
at the time of company,s liquidation.
2. No nominal cost
Company is not obliged to pay dividends to ordinary shareholders. It
can pay dividends to ordinary shareholders according to its own will.
3. Residual claims on profit
Equity shareholders are only entitled to residual profits of the company.
Dividend can be paid to them only after paying to all other parties.
4. Residual claims on assets
If company liquidates, ordinary shareholders will have claim on assets
after the claims of creditors and other classes of shareholders.
5. Voting rights
All ordinary shareholders have right to vote at company,s meetings on
various issues.
6. Right to purchase new shares
All ordinary shareholders have right to buy the shares of its existing
company and other companies as well.

Preference shares:
Salient features of preference shares are as follows.
Preference shareholders don,t have voting rights.
Their claim on company,s profit came before the claim of ordinary
shareholders.
Their claim on company,s property came after outsiders but before
ordinary shareholders.

The real owners of a company:

Ordinary shareholders are the real owners of the company because

they are real risk bearers as they entitled to residual claim on
company,s profit and assets.

Classification of equity shareholders:

Equity shareholders can be divided into four broad groups
Those who wish to own and control the company(internal shareholders)
Those who only wish to earn return on investment(external
shareholders)
Internal shareholders have two types:
1.Companies that own and control other company,s e.g MNC,s
holding companies and conglomerates.
2. large private investors e.g families closed groups and friends.
External shareholders also have two types:
1.Small private investors having wish to earn return on investment. e.g
individuals
2.Investing organizations e.g mutual funds, pension funds, insurance
companies etc.
Corporate shareholders: Large companies who create new
companies to expand their
businesses e.g multi national
companies.
Institutional shareholders:
It includes pension fund mutual funds managed funds life insurance
companies and banks.

Capabilities of institutional investors:

Investing money in shares is the business of institutional investors , they do
it in a professional and organized manner. They have competent staff to
analyze the performance of the companies.they are also able to access data
that helps them to select suitable investments. They maintain detailed
records of financial and other information about companies in which they
invest. In short they are knowledgeable and organized investors. Institutional
investors divide their portfolio into various categories. They hold short term
as well as long term shares in companies.institutional investors have
influence on board sof companies.

Institutional shareholders perspective:

Institutional investors have interest in sustainability of share velue

rather than mere temporary increase in shares value
However they never let go their short term gain as well.
They can influence the policy making processes of investee company.
By having standard evaluation models they can monitor the
performance of investee company.

Role
of
institutional
governance:

investors

in

corporate

Institutional investors have two qualities i.e professional competence

to understand what board is doing and second, their cloute due to their
size.
Institutional investors can have dialogue with board to aware them
about their concerns and preferences.
They can carry evaluation of financial and other reports of the
company
They can make judicious use of their vote.
In Pakistan institutional investors have no long term interest in
companies and therefore they refrain from interfering in companies
matters.

Shareholders expectations from company:

The board should be accountable to them and answer their

queries.
There should be transparancy in all decision making.
Directors should not prefer their self interest over other
stakeholders interest.
Directors should manage the companies efficiently and
effectively.
The real profits of company should be fairly shared with
shareholders.

Tools available to shareholders:

Shareholders have voting right so they can elect or remove

directors.
All transactions should be disclosed to shareholders
Law required from listed companies to issue financial statements
to shareholders
Directors remuneration should be approved by the shareholders.

Annual general meeting:

There should be one annual general meeting every year of
shareholders.
Only AGM can approve financial statements.
The combined code of corporate governance made following
recommendations about
AGM:

The company must encourage attendance of members on AGM.

Members should be encouraged to ask questions.
Matters should be put to vote individually.
Vote count should be one vote per share.
Shareholders if they can,t attend themselves the meeting can
nominate someone else to attend it.

Shareholders activism:

This is a new trend in corporate trend shareholders can take action

against the recommendations of directors. If institutional investors
support this activism then board finds it difficult to their decisions.
Areas in which they can show their dissent are:
Re-election of directors
Re-appointment of auditors
Approval of directors remuneration
Approval of annual accounts
Dividend recommendations
Changes in share capital
Approval of transaction with related parties.