Who are the Shareholders of a Corporation: Everything You Need to Know
Who are the shareholders of a corporation? The people who buy stock and own the company.3 min read
Who are the shareholders of a corporation? The people who buy stock and own the company.
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.
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 means the exact 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:
- Through dividends, which are paid based on the profits of the company and the number of shares owned
- Selling their shares for a profit
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:
- Right to information
- Stockholders are able to 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 in order to meet the Security Exchange Commission's guidelines. Also, corporations may disclose standardized and ad hoc reports to shareholders directly.
- 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.
- Meeting rights
- Annual shareholder meetings must take place as stated in the state corporate statutes. The meeting should cover topics such as governance actions and electing directors. Remember, small corporations may be able to address these matters through written correspondence, rather than holding an official meeting.
- 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.
- 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.
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