Key Takeaways

  • Shareholders, also known as stockholders, are individuals or entities that own shares of stock in a corporation.
  • These individuals have ownership rights, which may include voting, dividends, and access to corporate information.
  • Shareholders can be classified into various types, including individual, institutional, majority, and minority shareholders.
  • Shareholder responsibilities and influence vary based on the number and type of shares owned.
  • Shareholder value is closely tied to the company’s profitability and long-term success.
  • Individuals who own shares of stock in a business enjoy limited liability and other financial and legal protections.
  • New sections expand on shareholder types, responsibilities, corporate influence, and methods of acquiring shares.
  • UpCounsel offers access to experienced attorneys to assist with corporate structure, shareholder rights, and related matters.

Who are the shareholders of a corporation? The people who buy stock and own the company.

Corporate Structure

A corporation is a unique business entity because they're owned by individuals who:

  • Own the business
  • Buy shares of stock in the company
  • Are looking to earn dividends and capital gains

The typical corporate structure is made up of three groups: 

  • Shareholders, seeking a return on investment
  • Officers, managing the daily operations
  • Directors, providing oversight and protection to shareholders

What is a 'Shareholder?'

A shareholder may also be referred to as a stockholder. A stockholder or shareholder is an institution or individual (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders receive ownership rights based on their percentage of ownership in corporate stock. Shares are considered to be an apportioned ownership interest in the business. The value of one share of stock can range from less than one percent to 100 percent.

When a corporation is initially incorporated, the original owners are routinely the first shareholders. In smaller businesses, the initial owners remain the sole shareholders throughout the life of the corporation. Employees, managers, and owners may all be stockholders in the company where they handle the daily operations of the business. Additionally, one individual may be a shareholder, director, and officer. Generally, this only occurs in small corporations.

The general public or private investors will normally be the majority shareholders in a large corporation. Each shareholder will usually receive a stock certificate indicating how many shares they own in total. Increased stock prices and dividends reward shareholders for investing in a successful business. If the stock doesn't perform well, the shareholders may lose money on their investment if they sell the stock for less than they paid for it.

Unlike owners in a partnership or sole proprietorship, shareholders in a corporation are not personally responsible for repaying the company's financial obligations. In other words, if the corporation goes bankrupt, its creditors cannot demand repayment from the shareholders. Another benefit of being a shareholder is that there's usually no need to get involved in the daily operations of the business. Shareholders expect the officers and board of directors to manage the company.

How Shareholders Acquire Ownership

Individuals who own shares of stock in a business typically acquire their ownership through:

  • Initial Public Offering (IPO): When a private company goes public, individuals and institutions can purchase stock on the open market.
  • Direct Purchase: Through stock exchanges or private transactions in the case of closely-held corporations.
  • Employee Stock Options or Grants: Companies may offer stock as part of compensation packages.
  • Inheritance or Gifts: Shares may be transferred through estate planning or gifting.
  • Mergers and Acquisitions: Shareholders may gain stock in a new company following corporate mergers or acquisitions.

Types of Shareholders

Shareholders come in various forms, each with different rights and levels of involvement in the corporation. Common types include:

  • Individual Shareholders: These are private individuals who purchase shares, often for investment purposes or as part of an employee stock ownership plan.
  • Institutional Shareholders: Organizations such as mutual funds, pension funds, or insurance companies that invest large amounts of money and typically hold significant influence.
  • Majority Shareholders: Individuals or entities that own more than 50% of a company's shares, often holding substantial control over corporate decisions.
  • Minority Shareholders: Shareholders who own a smaller portion of stock and may have limited power in company direction.
  • Preferred Shareholders: Typically do not have voting rights but receive fixed dividends and have a higher claim on assets during liquidation than common shareholders.
  • Common Shareholders: Hold standard voting rights and receive dividends that vary depending on company performance.

What is the Difference Between a Shareholder and a Stockholder?

A stockholder and shareholder are virtually identical. They both characterize an individual that owns shares of stock in a corporation. Holding stock and holding shares mean the same thing. Individuals, trusts, and companies may own shares of stock in a for-profit corporation. All shares of stock are purchased at a specific price. Shareholders receive a benefit from ownership in two ways:

  1. Through dividends, which are paid based on the profits of the company and the number of shares owned
  2. Selling their shares for a profit

Responsibilities of Shareholders

While shareholders are not typically involved in day-to-day operations, they do carry certain responsibilities:

  • Voting in Key Decisions: Including electing directors and approving major corporate actions.
  • Staying Informed: Reviewing financial reports, corporate news, and attending annual meetings.
  • Exercising Fiduciary Duties (if applicable): Especially in small corporations or closely held entities where shareholders may also be directors or officers.
  • Engaging in Shareholder Activism: Institutional and retail investors alike may advocate for changes in governance, policies, or practices.

Shareholder Rights

Shareholders' rights are addressed in the corporation's charter and bylaws. The Model Business Corporations Act (Model Act) is used in many states and influences the law governing U.S. corporations. It's an important and often cited reference for courts, lawyers, and scholars. It includes the rights below:

  1. Right to information
    • Stockholders can access and analyze all corporate records related to governance and financial performance. Most of the financial information that a corporation produces is released to the public to meet the Security Exchange Commission's guidelines. Also, corporations may disclose standardized and ad hoc reports to shareholders directly.
  2. Right to vote
    • There must be one class of stock that represents an ownership interest in the corporation. Most companies, refer to this class of share as "common stock." Common stock provides voting rights to stockholders.
  3. Meeting rights
    • Annual shareholder meetings must take place as stated in the state corporate statutes. The meeting should cover topics such as government actions and electing directors. Remember, small corporations may be able to address these matters through written correspondence, rather than holding an official meeting.
  4. Right to make proposals
    • Shareholders owning $2,000 or more worth of shares or one percent have the right to add agenda items to the corporate proxy statement.
  5. Right to dissent
    • Dissenter rights are a type of special protection that is provided to shareholders who have invested in a company that is not actively traded. Dissenter rights provide shareholders with an option to force the corporation to buy back the shareholder's shares at fair value.

New Heading: Understanding Shareholder Value

Shareholder value represents the financial worth shareholders receive from their investment. It includes:

  • Market Value of Shares: Driven by stock price and influenced by company performance.
  • Dividends and Buybacks: Regular income and return of capital to shareholders.
  • Long-Term Growth Prospects: Companies that reinvest profits wisely often provide increasing returns to shareholders.
  • Risk Mitigation: Shareholders benefit when a company has sound financial strategies and strong governance.

Companies focused on increasing shareholder value tend to attract and retain investors, aligning long-term corporate goals with investor expectations.

The Role of Shareholders in Corporate Governance

Shareholders, especially those who own significant stakes, play a crucial role in corporate governance:

  • Electing the Board of Directors: Which in turn appoints executive leadership.
  • Approving Major Transactions: Such as mergers, acquisitions, and amendments to corporate bylaws.
  • Submitting Proposals: On matters like executive compensation, ESG (Environmental, Social, Governance) practices, or transparency initiatives.
  • Litigating on Behalf of the Corporation: In some cases, shareholders may bring derivative lawsuits to address misconduct by directors or officers.

While most shareholders are passive investors, those with larger holdings or strategic interests may exert considerable influence over business direction.

Economic and Legal Benefits of Shareholders

Being a shareholder offers multiple advantages beyond ownership:

  • Limited Liability: Shareholders are not personally liable for corporate debts or legal issues.
  • Dividend Income: Profitable companies often return a portion of earnings to shareholders.
  • Capital Appreciation: Share prices may increase over time, providing a return on investment.
  • Transferability: Shares can typically be sold or transferred, providing liquidity.
  • Tax Benefits: Depending on jurisdiction, capital gains and dividends may have preferential tax treatment.

Frequently Asked Questions

1. Who are considered shareholders in a corporation? Any individual, institution, or entity that owns at least one share of a company’s stock is a shareholder.

2. What rights do individuals who own shares of stock in a business have? They may have rights to vote, receive dividends, access financial information, and participate in annual meetings.

3. Are shareholders responsible for corporate debts? No, shareholders enjoy limited liability and are not personally responsible for the corporation’s obligations.

4. How do I become a shareholder in a corporation? You can buy shares through a stock exchange, private sale, employee program, inheritance, or during an IPO.

5. Can shareholders influence company decisions? Yes, particularly through voting on corporate matters, submitting proposals, or in cases where they hold a significant portion of shares.

If you need help determining who are the shareholders of a corporation, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.