On buying a company’s stock, you become part of the owner of such a company, which is commonly called a shareholder. However, you will not be charged with the burden of managing the daily operation of such a business. You become a shareholder, which entitles you to series of benefits.
Companies (for-profit companies and publicly traded companies) generally raise money by offering shares to investors. Such investors become part of the owners of a company. Any share you buy from a company through the IPO (initial public offering) will have the funds transferred to the firm directly.
Funds that come from offering shares to people are directed to funding the business. Anyone who buys the share, called the shareholder, can be part of the company’s owners for as long as they want. However, the value of one’s investment is a factor of the company’s success. As expected, the stock price may rise or fall due to many factors. However, you will have a higher share with a successful company, while a struggling company might make your share decline.
Who is a Shareholder?
When a single shareholder holds more than half of the shares of a company, such is called a majority shareholder. On the other hand, a minority shareholder controls less than 50% of a company’s stock.
The majority shareholders, in many cases, are the founders of a company. For old companies, such majority shareholders are usually descendants or offspring of the founders. Since they control more than half of the voting interest of the company, they have the power to influence critical operational decisions of the company, like choosing board members and directors, senior personnel, and chief executive officers. As a result, companies most times do not like allowing majority shareholders to be an external party.
Also, corporate shareholders in a company are not responsible for the debt and other financial obligations on a company as applicable in sole proprietorship or partnership.
Rights of a Shareholder
There are some rights that you automatically become eligible for when you purchase the shares of a company. Such requests are usually stated in the charters of the corporations and the bylaws.
The rights that shareholders enjoy might differ from one company to the other. As a result, the rights of a shareholder in a privately held company will vary significantly from that of a publicly-traded company. If you are wondering what do shareholders mean? The next section explores the right of a shareholder.
Basic Rights of a Cooperate Shareholders are
- The right to have access to company records
- The right to sue the company due to misconduct of directors and officers
- Right to access a part of the liquidated asset of the company
- Right to vote on essential company decisions, including deciding on a merger or appointing boards of directors
- Entitlement to company dividends
- Right to be part of annual company meetings, either in person or through conference calls.
Defining the right of shareholders is a duty of each company, which will be included in the company’s governing document like the Article of Incorporation.
Each member’s share has a nominal value which stands for the value of money that they can contribute to a company’s debt. This is the value that a shareholder is liable to pay when the company gets into financial difficulty.
Typically, most shareholders pay for their share once they get it or transfer it to them. In cases like this, the shareholder is removed from any financial obligation to the firm. In instances where the nominal value is unpaid, such value must be paid when requested.
Qualification for a Shareholder
There is no restriction or qualification to become a shareholder. The opportunity is opened to anyone based on the Companies Act 2006. Also, there is no restriction on age, location, and gender. Many times, company directors are usually shareholders as well.
At times, shareholders could be individual people. However, it is typical for shared to be issued to other firms or corporate bodies. This is common when there is a parent company that has a subsidiary.
One might wonder, is there any restriction on the number of shareholders a company can have? While there is no maximum cap for the number of shares possible, except specified in the shareholder’s general agreement, the minimum shareholder is one.
Comparing the Shares of Public Company to a Private Company
Small corporations hardly sell their shares publicly. Those companies have a small group of shareholders, making them closely held. Generally, such shareholders have a preexisting relationship and might even be related.
This is, however, different from the manner and approach of the shares of a public company. Often, they have a vast pool of shareholders that can run into millions.
For a private company or a closely held group, the shareholders are usually pretty involved in the company’s running. As expected, this is not the case for a public company as shareholders will only be allowed to vote during general meetings of the firm.
Also, the security and Exchange Commission usually foresee the operation of a publicly traded company while it is not so with a private company.