A shareholder (in the United States often referred to as stockholder) of a
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
is an
individual or
legal entity (such as another
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
, a
body politic, a
trust or
partnership) that is registered by the corporation as the legal owner of
shares of the
share capital 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 ...
or
private corporation. 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 of the shares. A corporation generally cannot own shares of itself.
The influence of a shareholder on the business is determined by the shareholding percentage owned. Shareholders of a corporation 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 :''"Primary market" may also refer to a market in art valuation.''
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 proc ...
by subscribing to the
IPOs and thus provided
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
to the corporation. However, most shareholders acquire shares in the
secondary market and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on a
share class. The
board of directors of a corporation generally governs a corporation for the benefit of shareholders.
Shareholders are considered by some to be a
subset
In mathematics, set ''A'' is a subset of a set ''B'' if all 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 are unequal, then ''A'' is a proper subset of ...
of
stakeholders, which may include anyone who has a direct or indirect interest in the
business entity. For example,
employees,
suppliers,
customers, the
community
A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, t ...
, etc., are typically considered
stakeholders because they contribute value or are impacted by the
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
.
Types
A
beneficial shareholder is the person or legal entity that has the economic benefit of ownership of the shares, while a
nominee 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 shares 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 shares (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, 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 resolutions.
* 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. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-i ...
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
shareholder resolutions.
* 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 c ...
s remain after a
liquidation.
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.
See also
*
Beneficial ownership
*
Business valuation
*
Class action
*
Class A share
*
Class B share
*
Corporate governance
Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...
*
Employee stock ownership
*
Investor
*
Real party in interest
*
Shareholder value
*
Social ownership
Social ownership is the appropriation of the surplus product, produced by the means of production, or the wealth that comes from it, to society as a whole. It is the defining characteristic of a socialist economic system. It can take the form o ...
*
Street name securities
References
{{authority control
Business terms
Stock market