A shareholder or stockholder is an important person when playing in the financial market such as stocks.
In this article, we’ll reveal to you all you need to know about a shareholder in stocks. Get your writing materials as we learn.
What Is a Shareholder?
A shareholder is a person, company, or institution that owns at least one share of a company’s stock or in a mutual fund. Shareholders essentially own the company, which comes with certain rights and responsibilities. This type of ownership allows them to reap the benefits of a business’s success.
These rewards come in the form of increased stock valuations or financial profits distributed as dividends. Conversely, when a company loses money, the share price invariably drops, which can cause shareholders to lose money or suffer declines in their portfolios.
Most majority shareholders are company founders. In older, more established companies, majority shareholders are frequently related to company founders. In either case, these shareholders wield considerable power to influence critical operational decisions, including replacing board members and C-level executives like chief executive officers (CEOs) and other senior personnel when they control more than half of the voting interest. That’s why many companies often avoid having majority shareholders among their ranks.
Unlike the owners of sole proprietorships or partnerships, corporate shareholders are not personally liable for the company’s debts and other financial obligations. Therefore, if a company becomes insolvent, its creditors cannot target a shareholder’s personal assets.
List of Shareholders’ Right You Need to Know
1. The right to inspect the company’s books and records
2. The power to sue the corporation for the misdeeds of its directors and/or officers
3. The right to vote on key corporate matters, such as naming board directors and deciding whether or not to green-light potential mergers
4. The entitlement to receive dividends
5. The right to attend annual meetings, either in person or via conference calls
6. The right to vote on critical matters by proxy, either through mail-in ballots or online voting platforms if they’re unable to attend voting meetings in person
7. The right to claim a proportionate allocation of proceeds if a company liquidates its assets.
Types of Shareholders
Many companies issue two types of stock: common and preferred. Common stock is more prevalent than preferred stock, and is what ordinary investors typically buy in the stock market.
Generally, common stockholders enjoy voting rights, but preferred stockholders do not. However, preferred stockholders have a priority claim to dividends. Furthermore, the dividends paid to preferred stockholders are generally more significant than those paid to common stockholders.
What are the main types of shareholders?
A majority shareholder owns and controls more than 50% of a company’s outstanding shares. This type of shareholder is often company founders or their descendants. Minority shareholders hold less than 50% of a company’s stock, even as little as one share.
What are some key shareholder rights?
Shareholders have the right to inspect the company’s books and records, the power to sue the corporation for the misdeeds of its directors and/or officers, and the right to vote on critical corporate matters, such as naming board directors. In addition, they have the right to decide whether or not to green-light potential mergers, the right to receive dividends, the right to attend annual meetings, the right to vote on crucial matters by proxy, and the right to claim a proportionate allocation of proceeds if a company liquidates its assets.
What is the difference between preferred and common shareholders?
The main difference between preferred and common shareholders is that the former typically have no voting rights, while the latter does. However, preferred shareholders have a priority claim to income, meaning that they are paid dividends before common shareholders. Common shareholders are last in line regarding company assets, which means that they will be paid out after creditors, bondholders, and preferred shareholders.
Closing Thoughts
Shareholders, or stockholders, are the owners of a company’s outstanding shares, which represents a residual portion of the corporation’s assets and earnings as well as a percentage of the company’s voting power. Stockholders have a right to participate in the distribution of corporate assets in the form of dividends (if they are paid) and possibly through the sale of their holdings at a profit on the stock market. Individuals may become shareholders by buying common stock in corporations through brokers or directly from the company (if they offer a direct investment plan).