A shareholder (in the United States often referred to as stockholder) of

corporate A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the state to act as a single entity (a legal entity recognized by private and public law as "born out of s ...

stock refers to an

individual An individual is one that exists as a distinct entity. Individuality (or self-hood) is the state or quality of living as an individual; particularly (in the case of humans) as a person unique from other people and possessing one's own needs or g ...

legal entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

(such as another

corporation A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...

, a

body politic The body politic is a polity—such as a city, realm, or state—considered metaphorically as a physical body. Historically, the sovereign is typically portrayed as the body's head, and the analogy may also be extended to other anatomical part ...

, a trust or

partnership A partnership is an agreement where parties agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations ...

) that is registered by the corporation as the legal owner of

shares In financial markets, a share (sometimes referred to as stock or equity) is a unit of equity ownership in the capital stock of a corporation. It can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Sha ...

of the

share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. ''Share ...

of a

public In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the totality of such groupings. This is a different concept to the sociology, sociological concept of the ''Öf ...

private corporation A privately held company (or simply a private company) is a company whose Stock, shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the Private equi ...

. Shareholders may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a corporation when their name and other details are entered in the corporation's register of shareholders or members, and unless required by law the corporation is not required or permitted to enquire as to the

beneficial ownership In domestic and international commercial law, a beneficial owner is a natural person or persons who ultimately owns or controls an interest in a legal entity or arrangement, such as a company, a trust, or a foundation. Legal owners (i.e. the own ...

of the shares. A corporation generally cannot own shares of itself. The influence of shareholders on the business is determined by the shareholding percentage owned. Shareholders of corporations are legally separate from the corporation itself. They are generally not liable for the corporation's debts, and the shareholders' liability for company debts is said to be limited to the unpaid share price unless a shareholder has offered guarantees. The corporation is not required to record the beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one person is on the record as owners of a shareholding, the first one on the record is taken to control the shareholding, and all correspondence and communication by the company will be with that person. Shareholders may have acquired their shares in the

primary market The primary market is the part of the capital market that deals with the issuance and sale of securities to purchasers directly by the issuer, with the issuer being paid the proceeds. A primary market means the market for new issues of securities, ...

by subscribing to the IPOs and thus provided capital to the corporation. However, most shareholders acquire shares in the

secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The initial sale of ...

and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on a

share class In finance, a share class or share classification are different types of Share (finance), shares in company share capital that have different levels of voting rights. For example, a company might create two classes of shares class A share and a cla ...

. The

board of directors A board of directors is a governing body that supervises the activities of a business, a nonprofit organization, or a government agency. The powers, duties, and responsibilities of a board of directors are determined by government regulatio ...

of a corporation generally governs a corporation for the benefit of shareholders. Shareholders are considered by some to be a

subset In mathematics, a Set (mathematics), set ''A'' is a subset of a set ''B'' if all Element (mathematics), elements of ''A'' are also elements of ''B''; ''B'' is then a superset of ''A''. It is possible for ''A'' and ''B'' to be equal; if they a ...

of stakeholders, which may include anyone who has a direct or indirect interest in the

business entity In law, a legal person is any person or legal entity that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on. The reason for the term "''le ...

. For example,

employees Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...

suppliers A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distr ...

customer In sales, commerce, and economics, a customer (sometimes known as a Client (business), client, buyer, or purchaser) is the recipient of a Good (economics), good, service (economics), service, product (business), product, or an Intellectual prop ...

s, the

community A community is a social unit (a group of people) with a shared socially-significant characteristic, such as place, set of norms, culture, religion, values, customs, or identity. Communities may share a sense of place situated in a given g ...

, etc., are typically considered stakeholders because they contribute value or are impacted by the

Types

A beneficial shareholder is the person or legal entity that has the economic benefit of ownership of the shares, while a

nominee A candidate, or nominee, is a prospective recipient of an award or honor, or a person seeking or being considered for some kind of position. For example, one can be a candidate for membership in a group or election to an office, in which case a ...

shareholder is the person or entity that is on the corporation's register of members as the owner while being in reality that person acts for the benefit or at the direction of the beneficial owner, whether disclosed or not. Primarily, there are two types of shareholders.

Ordinary shareholders

An individual or legal entity that owns

ordinary share Common stock is a form of corporate equity (finance), equity ownership, a type of security (finance), security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or or ...

s of a company (in the United States commonly referred as common stock) is usually referred to as an ordinary shareholder. This type of shareholding is the most common. Ordinary shareholders have the right to influence decisions concerning the company by participating at general meetings of the company and in the election of directors and can file class action lawsuits, when warranted.

Preference shareholders

Preference shareholders are owners of

preference share Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...

s (in the United States commonly referred as preferred stock). They are paid a fixed rate of dividend, which is paid in priority to the dividend to be paid to the ordinary shareholders. Preference shareholders usually do not have voting rights in the company.

Rights

Subject to the applicable laws, the rules of the corporation and any

shareholders' agreement A shareholders' agreement (sometimes referred to in the U.S. as a stockholders' agreement) (SHA) is an enforceable agreement amongst the shareholders or members of a company. In practical effect, it is analogous to a partnership agreement. There ...

, shareholders may have the right: * To sell their shares. * To vote on the directors nominated by the board of directors. * To nominate directors (although this is very difficult in practice because of minority protections) and propose

shareholder resolution With respect to public companies in the United States, a shareholder resolution is a proposal submitted by shareholders for a vote at the company's annual meeting. Typically, resolutions are opposed by the corporation's management, hence the insi ...

s. * To vote on mergers and changes to the corporate charter. * To

dividend A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...

s if they are declared. * To access certain information; for publicly traded companies, this information is normally publicly available. * To sue the company for violation of fiduciary duty. * To purchase new shares issued by the company. * To vote on & file

s. * To vote on management compensation ( say on pay). * To vote on management proposals. * To what

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

s remain after a

liquidation Liquidation is the process in accounting by which a Company (law), company is brought to an end. The assets and property of the business are redistributed. When a firm has been liquidated, it is sometimes referred to as :wikt:wind up#Noun, w ...

. The above-mentioned rights can be generally classified into (1) cash-flow rights and (2) voting rights. While the value of shares is mainly driven by the cash-flow rights that they carry (" cash is king"), voting rights can also be valuable. The value of shareholders' cash-flow rights can be computed by discounting future free cash flows. The value of shareholders' voting rights can be computed by four methods: * The difference between voting shares and non-voting shares (dual-class approach). * The difference between the price paid in a block-trade transaction and the subsequent price paid in a smaller transaction on exchanges (block-trade approach). * The implied voting value obtained from option prices. * The excess lending fee over voting events.

References

{{authority control Business terms Stock market

Types

Ordinary shareholders

Preference shareholders

Rights

See also

References