Last editedJun 20212 min read
When you buy even a single stock in a company, you officially become a shareholder. But what is a shareholder in terms of roles and responsibilities? Do all shareholders automatically gain voting rights? We’ll discuss the shareholder definition below, along with what to expect.
What is a shareholder?
Also called a stockholder, a shareholder refers to anyone who owns stock in a company. The shareholder definition applies to individuals as well as institutions and companies. Because purchasing stock gives you a portion of equity in the company, you share in its success. Shareholders benefit from increased stock valuations as well as dividends. But the flipside is that if the share prices drop, your portfolio will lose value accordingly. If the company goes bankrupt or is liquidated, shareholders might receive a portion of asset value after creditors have been paid.
Shareholders often gain the right to vote on certain company issues and can even qualify for a seat on the board of directors if elected. Some companies will have a handful of shareholders, while large, publicly held companies will have thousands.
Types of shareholders
Shareholders can be divided into two main types: common and preferred.
Common shareholders can vote on company issues.
Preferred shareholders give up their voting rights to receive a fixed dividend instead.
Most companies will issue far more common shares than preferred shares, and some will avoid preferred shareholders altogether.
What is a majority shareholder?
Another distinction to be aware of is a majority shareholder, which describes an individual who controls over 50% of the company’s shares. This gives them control of voting interest and a high level of influence when it comes to hiring and firing board members or CEOs. Most majority shareholders will be company founders and their descendants. Individuals who hold less than 50% of the company’s shares are called minority shareholders.
Shareholder rights and responsibilities
When you purchase stock in a company, you’ll gain certain shareholder rights. These typically include things like:
The right to vote on key issues that impact company performance
The right to vote on mergers and acquisitions
The right to receive dividends
The power to sue the corporation if its directors and officers put performance at risk
The right to vote on appointing new directors
The right to look at the company’s financial records
The right to attend meetings either remotely or in person
The right to claim a percentage of asset value if the company is liquidated
Specific rights will be outlined in the corporation’s charter, so you should consult this document to see what you’re entitled to as a shareholder.
Stakeholder vs. shareholder
Although the terms stakeholder and shareholder are often mistaken for one another, they do have different meanings. The key difference between stakeholder vs. shareholder is that a stakeholder doesn’t necessarily have ownership in the company. Shareholders do have some degree of ownership, determined by the number of shares they’ve purchased.
While stakeholders may not own stock in the company, they do still have interest in its performance. This may or may not be monetary in nature. For example, a corporation’s management-level employees might not hold any stock. However, they would still have an interest in its performance because this directly impacts their employment prospects. This makes them stakeholders in the company. It is, of course, possible to be both a stakeholder and a shareholder.
Ultimately, being a shareholder can be as hands-off or involved as you wish. When you purchase stock, you also gain some rights when it comes to determining how the company’s run. For those who are interested, you can help make decisions that impact the business’s growth and future.
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