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CMA Intermediate · Business Laws and Ethics · Rights of Shareholders

Mehta Textiles Ltd has a class of 8% preference shares whose dividend has not been paid for two consecutive years. A resolution to appoint an auditor is placed before the company. What is the position of that class of preference shareholders?

The preference shareholders may vote on all resolutions, including the auditor appointment. Where the dividend on a class of preference shares has not been paid for two years or more, that class gains the right to vote on every resolution placed before the company.

  1. AThey may vote on all resolutions, including this one, because the dividend has been unpaid for two years or moreCorrect
  2. BThey may vote only if the resolution affects their preference rights
  3. CThey may vote only on winding up resolutions
  4. DThey cannot vote until the dividend is unpaid for five years

Explanation

The second proviso to section 47(2) gives a class of preference shareholders the right to vote on all resolutions where its dividend has not been paid for two years or more. Option B states the ordinary rule, which no longer limits them here.

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