A shareholder is a person or an institution owning shares of one or more company’s stock. However, not all shareholders are the same. The role of shareholders allows them to vote on key decisions in a corporate and enjoy dividends as the company earns profits. On the other hand, some shareholders are passive investors receiving a fixed ROI every year.
If a company is selling the assets or is getting liquidated, the shareholder receives one portion of the money. It is after the settlement of the creditors. If such a situation arises, a stockholder enjoys the advantage. A shareholder need not bear or be a part of managing financial obligations and debts that are incurred by the company. They have to shoulder none of the company burdens. Thus, they are safe as even the creditors cannot ask or force the shareholders to pay them.
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Types of Shareholders
There are two types of shareholders, the Common and the Preferred type of shareholders.
Common shareholders are the shareholders owning common stock in a company. They are the stockholders of the prevalent type, and they can vote on matters relating to the company. These shareholders have control over the managing style of the company. They can also file a lawsuit against the company’s actions if they find anything wrong that is harmful potentially for the organization.
Preferred shareholders are not the same as common shareholders. They share the preferred stock of the company. They have no say or voting rights in the company. They do not have any say or voting rights in the company. Instead, they earn a fixed amount from the company as a shareholder. It is the annual dividend as a fixed amount. They receive this amount even before the common shareholders receive payment.
However, the common stock and the preferred stock see a positive performance and value increase of the company. Yet, the common stock shareholders are the ones that enjoy higher capital gains, but they also have to bear the burn of losses, if any.
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Role of Shareholders
A shareholder is not only revolving around receiving profits. It entails other responsibilities, such as:
- Deciding and brainstorming the powers that they will give the directors of the company. It includes removing and appointing them.
- Deciding on the salary of the directors. It is a tricky practice as the stockholders must assure the amount compensates for the cost of living and expenses in the city, regardless of where he lives in the city.
The shareholders are the company owners, and they give financial backing over a lifetime and receive potential dividends. A corporation or a person can become in three ways a shareholder of a company.
- By investing in new shares in the company.
- By subscribing to the company memorandum during incorporation.
- By obtaining shares by purchase from existing shareholders, by will, or by gift.
Subscribers are the people who usually initiate company incorporation, and they automatically after incorporation become the shareholders as the first point.
The shareholders can transfer their shares, but private companies can restrict this process through the articles of the company.
Also Read: Shareholders vs directors: who are they?
A shareholder can become a director as he is already a part-owner of the company. Thus, he has the privilege of exercising control and receiving profits over company management. On the other hand, a director is a person to perform the responsibilities assigned. He is hired by the shareholders and is given to handle the daily operations in the company aiming to improve the status of the company operations.
Shareholders cannot make amendment decisions made by directors regarding the running of the company. However, the role of shareholders allows them to get a director out of the company, or the board, and to restrict the powers of a director.