The spectacular meltdown of Enron and WorldCom may have prompted you to wonder about the rights of the shareholders in those companies, or in Bermuda companies.

Bermuda law does not distinguish between private and public companies, in the same way that other jurisdictions make a distinction. For us, a public company is normally understood to be a company that has its shares listed on a stock exchange such as Bermuda, New York or Hong Kong.

As a shareholder, you usually have four basic rights under the law, although these rights are directly affected by the constitution of the particular company in which you hold your shares. Your typical rights are to:

vote at shareholder meetings;

receive any dividends that may be declared;

receive certain continuing financial information on the company; and

receive a certain portion of the assets of the company if it is liquidated.

Let's look at these rights in a little more detail, in the context of private companies.

The right to vote is typically provided for in the bye-laws of a Bermuda company. Some companies do issue non-voting shares, and so it is extremely important before you buy shares in a company, to check whether your rights include the right to vote. Whilst, after your purchase, your vote may not be significant in a company which has a large number of shareholders, or in which your holding of shares is relatively small, it is still an important right which will entitle you to be consulted on a considerable number of corporate actions.

A company does not have to declare dividends, unless its bye-laws specifically require that they be declared and it is very unusual for a company's bye-laws to do so. Typically the decision to declare and pay dividends is left to the Board of Directors, which will consider a number of factors, including the company's need for future funds. If dividends are declared, usually they are distributed proportionately to all shareholders, but again, the constitution of the company and more particularly its bye-laws, set out a shareholder's right to dividends. Before you buy shares you should ascertain your legal right to receive dividends.

As a shareholder, you have a right to request certain information in respect of a company. You have a right to inspect the memorandum of association of the company and its register of directors and officers, as well as its register of shareholders, but those documents are also available to the public on payment of certain fees. You have a right to copies of the minutes of any meetings of shareholders, whether or not you attend those meetings, and you have a right to receive the audited financial statements of the company, unless you, along with all the other shareholders and directors of the company, have agreed to waive the audit. The right to receive the audited financial statements is an important one, as it enables you to receive independent confirmation as to the content of the financial statements being prepared by the company, and a verification of their accuracy. You also have a right to examine or have a copy of the bye-laws of the company which govern the relationship between the shareholders and the company and so, between you and your fellow shareholders.

The bye-laws of a company will also determine to what extent you, as a shareholder will participate in the assets of the company if it is ever wound up. Liquidation of a company, unless it is insolvent, normally takes place only upon a vote of the shareholders, (an example of the importance of exercising your right as a shareholder to vote, no matter how small your holding). Usually, if the company in which you hold shares has only a single class of shares, you will participate proportionately with all the other shareholders in any remaining assets, after the company has paid its debts. Again, this right is usually found in the company's bye-laws and is an important right to check.

If a company is not being properly run, a shareholder has two main courses of action available:

As a shareholder, if there is a breach of the company's constitution, you can seek to have the company review the wrong-doing and correct it, either by, seeking a shareholders' meeting to consider your issues or by requiring the Board of Directors to consider and address them. If no action is taken on either of these courses then, depending upon the nature of the problem, you may have the ability to convene a meeting of the shareholders yourself.

You can take action as a shareholder against a company in limited circumstances although this is a daunting prospect. However, the duties that directors and officers bear under the law are onerous and in the normal course, the consequences that the law imposes on directors and officers for any breach of duty ensures that directors carefully consider your interests as a shareholder. It is therefore hoped that, as seems to be the case up to now, the number of situations involving Bermuda companies which require legal action, by shareholders will remain very few.

Attorney Judith Collis is a Managing Partner of Appleby Spurling & Kempe and a member of the firm's Telecommunications & Technology Team. Copies of Ms Collis' columns can be obtained on the AS&K web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.