Question

You were ecstatic when you heard the news that your cousins Archie came into a large inheritance last year and invested the entire amount in the common stock of commonwealth Brewery, a large manufacturing of liquid drinking products. Subsequently he has been very interested in the company and watches it closely. Recently, the Nassau Guardian carried a story about major strategic changes at the company including massive layoffs and business realignments. Archie was devastated and was dumb-founded. He does not understand how the firm could have made such changes without the knowledge and approval of its stockholders. Write a brief letter to Archie explaining how things really work.

Answer 1

Share holders have a general perception that once they hold the part of the share, they have all the rights to the company as an owner. But this is not the case for most of the situations. Holding or acquiring shares in a company wont give share holder right of possession, right of ownership, or right to enter the company at will. The basic rights of the shareholders are very limited. Visible rights include voting rights and electing board of directors.

The company's actions are not responsibility of the share holders. This is due to the fact that if the company go bankrupt, only the share value of the shareholders will be lost.

Here, in this case there is no point Archie getting disappointed by the strategic changes, layoffs and business changes in Common wealth brewery as these are decided by the Management of the company with the overlook of Board of directors. For decision making the company is not entitled to ask the opinion of all the shareholders whereas after the decisions are made all the listed companies are entitled to pass the information through official channels to the shareholders.