What is a Shareholder?
A shareholder can be a person, company, or organization that holds stock(s) in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner. Shareholders typically receive declared dividends if the company does well and succeeds.
Also called a stockholder, they have the right to vote on certain matters with regard to the company and to be elected to a seat on the board of directors.
If the company is getting liquidated and its assets are sold, the shareholder may receive a portion of that money, provided that the creditors have already been paid. When such a situation arises, the advantage of being a stockholder lies in the fact that they are not obliged to shoulder the debts and financial obligations incurred by the company, which means creditors cannot compel stockholders to pay them.
Roles of a Shareholder
Being a shareholder isn’t all just about receiving profits, as it also includes other responsibilities. Let’s look at some of these responsibilities.
- Brainstorming and deciding the powers they will bestow upon the company’s directors, including appointing and removing them from office
- Deciding on how much the directors receive for their salary. The practice is very tricky because stockholders must make sure that the amount they will give will compensate for the expenses and cost of living in the city where the director lives, without compromising the company’s coffers.
- Making decisions on instances the directors have no power over, including making changes to the company’s constitution
- Checking and making approvals of the financial statements of the company
Types of Shareholders
Common shareholders are those that own a company’s common stock. They are the more prevalent type of stockholders and they have the right to vote on matters concerning the company. As they have control over how the company is managed, they have the right to file a class-action lawsuit against the company for any wrongdoing that can potentially harm the organization.
Preferred shareholders, on the other hand, are more rare. Unlike common shareholders, they own a share of the company’s preferred stock and have no voting rights or any say in the way the company is managed. Instead, they are entitled to a fixed amount of annual dividend, which they will receive before the common shareholders are paid their part.
Though both common stock and preferred stock see their value increase with the positive performance of the company, it is the former that experiences higher capital gains or losses.
Can the Shareholder be a Director?
The shareholder and director are two different entities, though a shareholder can be a director at the same time.
The shareholder, as already mentioned, is a part-owner of the company and is entitled to privileges such as receiving profits and exercising control over the management of the company. A director, on the other hand, is the person hired by the shareholders to perform responsibilities that are related to the company’s daily operations with the intent of improving its status.
Shareholder and Stakeholder are often used interchangeably, with many people thinking that they are one and the same. However, the two terms don’t mean the same thing. A shareholder is an owner of a company as determined by the number of shares they own. A stakeholder does not own part of the company but does have some interest in the performance of a company just like the shareholders. However, their interest may or may not involve money.
For example, a chain of hotels in the US that employs 3,000 people has several stakeholders, including its employees because they rely on the company for their job. Other stakeholders include the local and national governments because of the taxes the company must pay annually.
Shareholder vs. Subscriber
Before a company becomes public, it starts out first as a private limited company that is run, formed, and organized by a group of people called “subscribers.” The subscribers are considered the first members of the company whose names are listed in the memorandum of association. Once the company goes public, their names continue to be written in the public register and they remain as such even after their departure from the company.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: