Dictionary

Shareholder

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Who is a Shareholder?

A shareholder (also called stockholder) is a corporation, an individual, or an organisation that owns at least one share of a company's equity (stock).

Shareholders earn profit from a company's success because they are effectively the owners of the company. Increased stock valuations, or financial gains paid as dividends, are examples of such incentives. When a company loses revenue, the share price decreases, which may result in shareholders losing money or having their portfolio prices decline.

In a company, if a shareholder holds more than 50 percent of shares, he or she become a majority shareholder, while those who have less than 50 percent shares are known as minority shareholders.

In certain cases, majority shareholders are the founders of a company. Majority owners of older companies are often the descendants of the company's founders. Mjority shareholders hold decision-making power, influencing business operations such as the replacement of board members, by holding more than half of the company's voting interest.

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Corporate shareholders, unlike members of sole proprietorships or corporations, are not directly responsible for the company's debts and other contractual responsibilities. As a result, if a corporation goes bankrupt, its creditors are unable to pursue a shareholder's personal properties.

What are the rights of a shareholder?

  • The right to evaluate the books and papers of the entity.
  • To be able to sue a company for wrongdoings committed by its directors and/or officers.
  • The ability to vote on important organisational issues such as board member nominations and whether to approve proposed mergers.
  • The right to dividends is a legal term, which refers to the right to earn money.
  • The ability to take part in annual meetings.
  • If they are unable to attend voting meetings in person, they can rightfully vote by proxy on important issues via mail-in ballots or online.
  • When a corporation liquidates its assets, it has the right to a proportionate distribution of the proceeds.

What are the types of Shareholders?

There are primarily two types of shareholders.

Common Shareholders: Common Shareholders are the owners of a company's common stocks and have voting rights. When the company makes profit and the directors decide not to spend it all, common shareholders earn dividends.

Shareholders of common stock may also be eligible to participate in a variety of corporate activities, such as share buybacks (when the company buys back shares from investors) and the issuance of new shares.

They have the right to sue a corporation in case of any misconduct, which may harm the organisation.

Preferred shareholders: Preferred stockholders own a share of a company's preferred stock and get a set amount of money as a dividend. They have no voting rights.

When dividends are paid out, preferred shareholders are entitled to receive the first payment, with the remainder going to common shareholders.

What is the difference between Common Stakeholders and Preferred Stakeholders?

Common stockholders can claim any remaining assets in case a company liquidates completely. Preferred stockholders, on the other hand, are in front of the line, and are paying first, with common stockholders receiving the remainder.

The greatest danger of buying common stock is that if a corporation goes bankrupt, you'll be the last in line.

What is the difference between a stockholder and a stakeholder?

The terms "stockholder" and "stakeholder" are sometimes used interchangeably. They are diametrically opposed.  All stakeholders are not shareholders, but all shareholders are stakeholders.

A stockholder is an individual who owns one or more shares in a corporation, while a stakeholder is any person, entity, or community who is impacted by a company's operations.

Employees, labour unions, customers, suppliers, creditors, government, and shareholders are all stakeholders. A government is stakeholder as it collects taxes and awards grants, etc.

The local community is a stakeholder because the business provides employment, and if it has factories, there will be waste, odour, and noise issues that impact the surrounding area.

What is the role of a shareholder?

There is always a role of every individual in a company and, shareholders play an important role in managing a company's operations and finances. Let's discuss about some of their responsibilities.

  • They brainstorm and determine what powers they'll offer to a company's directors, such as naming and dismissing them.
  • Choosing the amount of money, the directors would be paid. The practise is complicated because stockholders must ensure that the sum given will cover the director's expenses and cost of living in the city where he or she lives while not jeopardising the company's finances.
  • Make decisions on matters on which the directors have no jurisdiction, such as amendments to the company's constitution.
  • Examining and signing off on a company's financial statements.

Can a shareholder be a director?

A shareholder and a director are two separate bodies, though a shareholder may also be a director.

As mentioned above, the shareholder is a part owner of an entity and is eligible to avail benefits such as profit distribution and influence over the company's management.

A director is an individual appointed by the shareholders to carry out duties and responsibilities pertaining to the company's activities to improve its standing.

What is the difference between shareholders & subscribers?

Subscribers are the group of people who founded, run, and organised a business when it was a private limited company and yet to become public. The subscribers are the company's first shareholders, as their names appear in the memorandum of association. Their names are written in the public ledger whenever the company goes public, and they remain there even after they leave the company.

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