Shareholder rights, voting and proxy advisors

A shareholder's main tool is the vote. In a company with no controlling owner, every vote counts. In a promoter-controlled company, the promoter can pass most ordinary resolutions alone, so minority votes matter mainly in two places: special resolutions, which need 75% of the votes cast, and related-party approvals, where related parties are not allowed to vote in favour.

Institutional investors such as mutual funds, insurers and foreign funds hold most of the non-promoter votes in large Indian companies. Many of them use proxy advisors, firms that study each resolution and recommend how to vote.

For analysts, voting results are a free and underused source of information. When a large share of institutional investors votes against a resolution, it often signals a governance concern before it shows up anywhere else.

Core rights of shareholders

• Vote at general meetings: the AGM must be held within six months of the end of the financial year, with no more than 15 months between two AGMs
• Call a meeting: shareholders holding at least 10% of the paid-up voting capital can ask the board to call an extraordinary general meeting
• Information: annual reports, quarterly results, material event disclosures and notices of meetings
• Dividends: as declared by the company
• Legal remedies: petitions to the NCLT against oppression and mismanagement, and class actions by groups of shareholders

Ordinary and special resolutions

• Ordinary resolution: passes with more votes for than against
• Special resolution: passes only if votes for are at least three times the votes against, that is, at least 75% of the votes cast

Decisions that need a special resolution include:

• Appointing or removing an independent director
• Approving a new ESOP scheme
• Paying directors above legal limits, or high pay to promoter executives
• Changing the articles of association
• Selling, leasing or disposing of a whole undertaking outside a scheme of arrangement

Majority of the minority

For material related-party transactions, related parties cannot vote in favour of the resolution, whether or not they are party to the deal. This effectively gives non-related shareholders the final say.

E-voting and results

Listed companies must offer electronic voting on all resolutions and publish the voting results within two working days of the meeting. The results show votes for and against from three groups: promoters, public institutions and public non-institutions.

Minimum public shareholding

Listed companies must keep at least 25% of their shares with the public, with longer timelines for very large companies after listing. This rule ensures there is a meaningful minority to protect and enough shares for trading.

Superior voting rights shares

Since 2019, SEBI has allowed some technology companies to list with superior voting rights (SR) shares held by founders. The main safeguards:

• Voting power of each SR share between 2 and 10 times an ordinary share
• A sunset after five years, which can be extended once by five years with a vote in which SR holders do not take part
• One share, one vote on key matters, such as appointing independent directors and auditors, related-party deals and winding up
• SR rights end if the shares are sold or the founder leaves

Proxy advisors

Proxy advisors analyse resolutions and recommend votes to institutional investors. In India, the main ones are Institutional Investor Advisory Services (IiAS), InGovern Research Services and Stakeholders Empowerment Services (SES). SEBI regulates them under its Research Analysts Regulations, and its 2020 guidelines require them to disclose their voting methods, manage conflicts of interest and share their reports with the company as well as with clients.