Grupo Resilient International Inc (GRUI)

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Knowing Your Rights As A Shareholder

http://www.investopedia.com/articles/01/050201.asp

Risks and Rewards
Sounds pretty bad for common shareholders, doesn't it? Don’t be fooled, common shareholders are still the part owners of the business and if the business is able to turn a profit, then common shareholders gain. The liquidation preference we described makes logical sense: shareholders take on a greater risk (they receive next to nothing if the firm goes bankrupt) but they also have a greater reward potential through exposure to share price appreciation, when the company succeeds. Whereas preferred stock is usually less in number, held by a select few and generally sees less fluctuations in its price.

Common Shareholder's Six Main Rights
1) Voting Power on Major Issues
This includes electing directors and proposals for fundamental changes affecting the company such as mergers or liquidation. Voting takes place at the company’s annual meeting. If you can’t attend, you can by proxy and mail in your vote. (see The Purpose and Importance of Proxy Voting)

2) Ownership in a Portion of the Company
Previously we discussed the event of a corporate liquidation where bondholders and preferred shareholders are paid first. However when business thrives, common shareholders own a piece of something that has value. Said another way, you have a claim on a portion of the assets owned by the company. As these assets generate profits, and as the profits are reinvested in additional assets, you see a return in the form of increased share value as stock prices rise.

3) Right to Tansfer Ownership
This, in other words, means you are allowed to trade your stock on an exchange. The right to transfer ownership might seem mundane, but the liquidity provided by stock exchanges is extremely important. Liquidity is one of the key factors that differentiate stocks from an investment like real estate. If you own property, it can take months to convert your investment into cash. Because stocks are so liquid, you can move your money into other places almost instantaneously.

4) Dividend Entitlement
Along with a claim on assets, you also receive a claim on any profits a company pays out in the form of a dividend. Management of a company essentially has two options with profits: they can be reinvested back into the firm (hopefully increasing the company’s overall value) or paid out in the form of a dividend. You don’t have a say in what percentage of profits should be paid out, this is decided by the board of directors. However, whenever dividends are declared, common shareholders are entitled to receive their share. (see How and Why Do Companies Pay Dividends?)

5) Opportunity to Inspect Corporate Books and Records
This opportunity is provided through a company’s public filings, including their annual report. Nowadays this isn’t such a big deal as public companies are required to make their financials public. This can be important though for private companies.

6) Suing for Wrongful Acts
Suing the company is usually in the form of a shareholder class-action lawsuit. A good example of this type of suit occurred in the wake of the accounting scandal that rocked WorldCom in 2002 where it grossly overstated earnings, giving shareholders and investors an erroneous view of its financial health. The telecom giant faced a firestorm of shareholder class-action suits as a result. (see The Biggest Stock Scams of All Time)

Remember, shareholder rights vary from state to state, and country to country. It is important to check with your local authorities and public watchdog groups. In North America, however, shareholders rights tend to be more developed than other nations and are standard for the purchase of any common stock. These rights are crucial for the protection of shareholders against poor management.

Corporate Governance
In addition to the six basic rights of common shareholders, it is vital that you thoroughly research the corporate governance policies of a company. These policies are often crucial in determining how a company treats and informs its shareholders. For a detailed look at the importance of corporate governance to shareholders and prospective investors as well as where to find a company’s record or policy, see Governance Pays.

Shareholder Rights Plan
Despite its name, this plan differs from the standard shareholder rights outlined by the government (the six rights we touched on). Shareholder rights plans outline the rights of a shareholder in a specific corporation. To acquire a company’s shareholder rights plan, it is usually accessible in the investor’s relations section of their corporate website or by contacting the company directly.

In most cases, these plans are designed to give the company's board of directors the power to protect shareholder interests in the event of an attempt by an outsider to acquire the company. To prevent a hostile takeover, the company will have a shareholder rights plan that can be exercised when another person or firm acquires a certain percentage of outstanding shares. For example, here is a quick summary of what Suncor Energy Inc, a Canadian oil and gas company, attempts to accomplish with their shareholders rights plan:
“The objective of Suncor's Shareholder Rights Plan is to ensure that, in the event of a bid for control through an acquisition of the company's common shares, the Board of Directors of the company has sufficient time to:


explore and develop alternatives for maximizing shareholder value
provide adequate time for competing bids to emerge
ensure shareholders have an equal opportunity to participate in such a bid
give shareholders adequate time to properly assess the bid and lessen the pressure to tender that is typically encountered by a shareholder of a corporation that is subject to a bid.”
The way a shareholder rights plan may work is likely best demonstrated with an example: let's say Cory’s Tequila Co notices their competitor, Joe’s Tequila Co, has purchased over 20% of its common shares. A shareholder rights plan might then stipulate that existing common shareholders have the opportunity to buy shares at a discount to the current market price (usually a 10-20% discount). This maneuver is sometimes referred to as a "flip-in poison pill". By being able to purchase more shares at a lower price, investors get instant profits and more importantly, they dilute the shares held by the competitor, whose takeover attempt is now more difficult and expensive. There are numerous techniques like this which companies can put into place to defend themselves against a hostile takeover. (see The Wacky World of M & A)