Section 47 Of Companies Act 2013: 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.