A shareholder (in the United States often referred to as stockholder) of a

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...

is an individual or

legal entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...

(such as another

, a body politic, a trust or

partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...

) that is registered by the corporation as the legal owner of shares of the share capital of a

public In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the totality of such groupings. This is a different concept to the sociological concept of the ''Öffentlichk ...

or private corporation. Shareholders may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a corporation when their name and other details are entered in the corporation's register of shareholders or members, and unless required by law the corporation is not required or permitted to enquire as to the

beneficial ownership In domestic and international commercial law, a beneficial owner is a natural person or persons who ultimately owns or controls an interest in a legal entity or arrangement, such as a company, a trust, or a foundation. Legal owners (i.e. the own ...

of the shares. A corporation generally cannot own shares of itself. The influence of a shareholder on the business is determined by the shareholding percentage owned. Shareholders of a corporation are legally separate from the corporation itself. They are generally not liable for the corporation's debts, and the shareholders' liability for company debts is said to be limited to the unpaid share price unless a shareholder has offered guarantees. The corporation is not required to record the beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one person is on the record as owners of a shareholding, the first one on the record is taken to control the shareholding, and all correspondence and communication by the company will be with that person. Shareholders may have acquired their shares in the primary market by subscribing to the IPOs and thus provided capital to the corporation. However, most shareholders acquire shares in the secondary market and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on a

share class In finance, a share class or share classification are different types of shares in company share capital that have different levels of voting rights. For example, a company might create two classes of shares class A share and a class B share whe ...

. The board of directors of a corporation generally governs a corporation for the benefit of shareholders. Shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the

business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...

. For example, employees,

suppliers In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

customers In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange for ...

, the

community A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, ...

, etc., are typically considered stakeholders because they contribute value or are impacted by the

Types

A beneficial shareholder is the person or legal entity that has the economic benefit of ownership of the shares, while a

nominee A candidate, or nominee, is the prospective recipient of an award or honor, or a person seeking or being considered for some kind of position; for example: * to be elected to an office — in this case a candidate selection procedure occurs. * t ...

shareholder is the person or entity that is on the corporation's register of members as the owner while being in reality that person acts for the benefit or at the direction of the beneficial owner, whether disclosed or not. Primarily, there are two types of shareholders.

Ordinary shareholders

An individual or legal entity that owns

ordinary share Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Comm ...

s of a company (in the United States commonly referred as common stock) is usually referred to as an ordinary shareholder. This type of shareholding is the most common. Ordinary shareholders have the right to influence decisions concerning the company by participating at general meetings of the company and in the election of directors and can file class action lawsuits, when warranted.

Preference shareholders

Preference shareholders are owners of

preference share Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...

s (in the United States commonly referred as preferred stock). They are paid a fixed rate of dividend, which is paid in priority to the dividend to be paid to the ordinary shareholders. Preference shareholders usually do not have voting rights in the company.

Rights

Subject to the applicable laws, the rules of the corporation and any shareholders' agreement, shareholders may have the right: * To sell their shares. * To vote on the directors nominated by the board of directors. * To nominate directors (although this is very difficult in practice because of minority protections) and propose

shareholder resolution With respect to public companies in the United States, a shareholder resolution is a proposal submitted by shareholders for a vote at the company's annual meeting. Typically, resolutions are opposed by the corporation's management, hence the insis ...

s. * To vote on mergers and changes to the corporate charter. * To dividends if they are declared. * To access certain information; for publicly traded companies, this information is normally publicly available. * To sue the company for violation of fiduciary duty. * To purchase new shares issued by the company. * To vote on & file

s. * To vote on management proposals. * To what

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...

s remain after a liquidation. The above-mentioned rights can be generally classified into (1) cash-flow rights and (2) voting rights. While the value of shares is mainly driven by the cash-flow rights that they carry (" cash is king"), voting rights can also be valuable. The value of shareholders' cash-flow rights can be computed by discounting future free cash flows. The value of shareholders' voting rights can be computed by four methods: * The difference between voting shares and non-voting shares (dual-class approach). * The difference between the price paid in a block-trade transaction and the subsequent price paid in a smaller transaction on exchanges (block-trade approach). * The implied voting value obtained from option prices. * The excess lending fee over voting events.

References

{{authority control Business terms Stock market

Types

Ordinary shareholders

Preference shareholders

Rights

See also

References