Shareholders in a company: Their role and rights

Any individual or business that owns stock in a company is a shareholder in that company. A shareholder must own at least one share of the company's stock to be considered a partial owner. The shareholders receive a portion of the proceeds if the company is liquidated and its assets sold, provided the creditors have already been paid. The benefit is that, since they are not responsible for the debts and obligations incurred by the company, creditors cannot compel stockholders to pay them more than the amount they have invested in the stock they hold. This is also where the concept of Limited Liability comes into play.

Shareholders can vote on specific corporate issues and can be elected to the board of directors.

By definition, a majority shareholder is a single shareholder who holds and controls more than 50% of the outstanding shares of a corporation. Comparatively, minority shareholders are individuals who own less than 50% of a company's equity.

Rights of shareholders

Shareholders enjoy the following rights as per a corporation's charter and bylaws:

● The right to look at the company's financial documents.

● The opportunity to vote on important corporate issues. These include electing board members and approving proposed mergers. 

● Moreover, shareholders have the right to dividend payments.

● The chance to participate in yearly meetings.

● In addition, shareholders also have the right to request a proportionate share of the money if a business sells its assets

Types of Shareholders

There are two types of shareholders. These are: 

Common shareholders

The owners of a company's common stock are known as common shareholders. They are the most common type of stockholders. They have the right to cast ballots on decisions affecting the company, besides the authority to sue the business for any misconduct that might endanger the organisation since they have control over how it is run.

Preference shareholders

Preferred stockholders are relatively uncommon. They own shares of the company's preferred stock but have no voting rights and, consequently, no influence over the manner in which the business is run. Instead, they are qualified for a set annual dividend that is paid to them before the common shareholders receive their portion of the dividend.

While both common stock and preferred stock see an increase in value in response to the company's success, the former is more likely to experience capital gains or losses.

Shareholder vs Subscriber

A firm is a private limited company before it goes public. It is managed, created, and organised by a group of persons referred to as 'subscribers'. The subscribers, whose names appear in the Memorandum of Association (MoA), are regarded as the company's first members. Their names stay listed in the public record after the company goes public. Moreover, they do so even if they leave the business.

Conclusion

There are many good reasons to invest in stocks and become a shareholder, but there are risks too, in this endeavour. If a company does well and its share price rises, the existing shareholders gain from the higher price. This is because the value of the shares they now own has increased. 

Businesses distribute their profits to their existing shareholders in the form of dividends. Usually, businesses pay dividends in cash. But, occasionally, they also issue shares.

When you purchase stock in a company, your exposure is limited to the cost of the shares. This contrasts with other types of corporate ownership, such as sole proprietorship. Here, the owner is responsible for any losses the company suffers.

But prices for stocks don't always rise. The shareholder loses value if the stock price declines after the shareholders buy it. There is no assurance the business will distribute dividends. They might not generate enough money to cover dividend payments. Or, the company might choose to keep that money as retained earnings and reinvest it in the enterprise.

Simply purchasing shares in a company entitles you to the status of a shareholder in the company. You can accomplish this using the app, website, or physical location of a brokerage firm. Be sure you first conduct your study and due diligence. If you purchase shares, be sure it is suitable for you by considering your risk appetite, investing goals, and how the company stacks up to these criteria.

FAQ

Q. Do shareholders serve as directors?

Although a shareholder can also serve as a director at the same time, shareholders and directors are distinct legal entities. The shareholder is a part-owner of the business. Therefore, the shareholder is entitled to benefits like profit distribution and managerial oversight. On the other hand, a director is a person appointed by the shareholders. It is done to carry out duties connected to the regular operations of the business.

Q. What is the difference between shareholders and stakeholders? 

The two names don't have the same meaning. Depending on how many shares they own, a shareholder is a corporate owner. Stakeholders, like shareholders, are interested in a company's performance even though they may not own any equity in it. However, they might or might not be interested in making money.