Reference
Section 151 of the Companies Act, 2013.
Rule 7 of the Companies (Appointment and Qualifications of Directors) Rules, 2014.
Regulations 2(i)(n) and 6 of the SEBI (Buy-Back of Securities) Regulations, 2018.
Definition of Small Shareholder
There is no specific definition provided in the Companies Act for the term 'small shareholder'.
However, in relation to the appointment of a director by small shareholders under section 151, the meaning of small shareholder is provided as give hereunder:
- ‘Small shareholder’ means a shareholder holding shares of nominal value of not more than Rs. 20,000 or such other sum as may be prescribed.
SEBI (Buy-Back of Securities) Regulations, 2018
The definition of small shareholder as given under Regulation 2(i)(n) of the SEBI (Buy-Back of Securities) Regulations, 2018:
- ‘Small shareholder’ means a shareholder of a company, who holds shares or other specified securities whose market value, on the basis of closing price of shares or other specified securities, on the recognised stock exchange in which highest trading volume in respect of such securities, as on record date is not more than two lakh rupee.
According to Regulation 6, a company may buy-back its shares or other specified securities from its existing securities holders on a proportionate basis, provided that fifteen percent of the number of securities which the company proposes to buy-back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders.
Small Shareholders' Director Appointment
Refer Rule 7 for detailed provisions. Some important points are noted hereunder.
A small shareholders' director:
• is considered as an independent director subject to section 149;
• is not be liable to retire by rotation;
• is not eligible for re-appointment on the expiry of his tenure.
His tenure shall not exceed a period of 3 consecutive years.
A person can not be a small shareholders’ director in more than 2 companies simultaneously.
A person can not be appointed as a small shareholders’ director in 2 companies who are in competing business or having conflict of business with each other.
Min. # Small Shareholders to request candidature
A listed company may, upon receipt of notice by such a number of small shareholders as mentioned below, have a small shareholders’ director elected by the small shareholders:
• not less than 1000 small shareholders; or
• 1/10th of the total number of small shareholders;
• whichever is lower.
Such small shareholders shall serve a notice at least 14 days before the meeting, specifying their intention of proposing the candidature of a person for the post of small shareholders’ director.
Suo motu appointment by the listed company
A listed company may have a director representing small shareholders appointed if it deems fit to make such an appointment.
Not to hold position in any other capacity
A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.
Example:
• Mr. X was appointed as a small shareholders' director in ABC Limited on 15th May, 2017 for three years.
• Mr. X's last date in office was 14th May, 2020. And, from the next date, he ceased to hold office as the small shareholders’ director of ABC Limited.
• Hence, for next three years i.e. till 14th May, 2023, he shall not be appointed in or be associated with ABC Limited in any other capacity, either directly or indirectly.
Not to hold position in any other capacity
A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity, either directly or indirectly.
Example:
• Mr. X was appointed as a small shareholders' director in ABC Limited on 15th May, 2017 for three years.
• Mr. X's last date in office was 14th May, 2020. And, from the next date, he ceased to hold office as the small shareholders’ director of ABC Limited.
• Hence, for next three years i.e. till 14th May, 2023, he shall not be appointed in or be associated with ABC Limited in any other capacity, either directly or indirectly.
The rights and welfare of small shareholders are grossly ignored in big corporates. Benefits are highly exploited by the major stake-holding shareholders and not passed on at all to the small shareholders or very disproportionately given to them. Crooked thoughts of highly paid executives safeguarded by the auditors is saving these major stakeholders who are generally the promoters of the company. More transparency needed in the system. Most importantly the small shareholders must analyse the company affairs intelligently and raise their voice once in a while to pull the strings on these promoters.
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