11 November 2012

Uganda: On Shareholder Rights and Duties


Finance — While investors are enthusiastic at the initial stage of purchasing shares, some lose interest soon after.

This explains why some companies are stuck with unclaimed dividend cheques even after announcements are made in the media and other communication channels for shareholders to pick them.

Some of this money cannot be delivered because some shareholders change addresses or account details and do not notify the company of this development.

Owning a stake in a company listed on the Uganda Securities Exchange (USE) comes with rights and responsibilities.

Many shareholders restrict their interest to tracking the performance of their shares and waiting for the dividend pay-out announcement. However, buying a stake in a company through an Initial Public Offer (IPO) requires arming yourself with knowledge as well as having your voice heard.

Building confidence in the capital markets requires that shareholders or prospective investors know their rights and responsibilities.

These rights are enshrined in the Company's Act, Capital Markets Authority (CMA) Statute, Uganda Securities Exchange (USE) listing rules and the Memorandum and Articles of Association.

Since shareholders provide some form of capital which is a requirement to support any business, they become part owners of the said company.

The USE says that to confirm their business as part owners of that going concern, shareholders have a right to receive a statement derived from an electronic record.

Previously, before immobilisation, they used to receive a share certificate, which was the case before the launch of the Securities Central Depository system.

The share statement will be similar to a bank statement. This means that all shareholders have to open an SCD account to be able to trade at the bourse.

As it is, investors have a right to transfer or sell the shares, thereby ceasing to be shareholders in companies. While shareholders can do this to any person of their choice in accordance with the Companies Act, there are limits when it comes to listed companies.

Transfer of shares of listed companies in the secondary market is restricted and it should only be through members of the USE.

This implies it is your broker/dealer (a member of the USE) who is authorised to sell your shares in a listed company on your behalf at the bourse. This possibility of transfer of ownership means you can trade your stock at the USE.

It is a shareholder's responsibility to attend the company annual general meeting (AGM). If you cannot attend, endeavor to send a representative. It is during the AGM that all shareholders field questions related to management of the company.

If you want to effectively contribute to the AGM, you need to be armed with the financial statements and a record of the previous meeting. According to the rules, shareholders, have a right to receive a notice at least 21 days prior to the AGM.

As a shareholder, it is your right to receive your company's annual report. Shareholders also have right to seek clarity on matters regarding the accounts presented at the AGM.

If you cannot comprehend the statements of accounts, it's advisable to seek help from your investment adviser or a friend that is competent in this area. During the AGM, you have a right to speak and vote on important issues. You can only do this if you are well informed.

Given that most investors look towards good returns, it's your right to receive a dividend payment following a board recommendation and approval at the AGM. However, remember that the dividend is only declared if a company makes profits.

It is important to note that investor protection provisions are meant to ensure that investors do not lose money just as they cannot guarantee that investors will make money. But atleast they cushion the investor against any losses caused by unscrupulous promoters.

The writer works with Bank of Uganda.

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