Definition
A shareholder, also known as a stockholder, is an individual, company, or institution that owns at least one share of a company’s stock. As owners, they have a claim on part of the company’s assets and earnings. They also typically possess voting rights and the potential to benefit from dividends and capital gains.
Key Takeaways
- A Shareholder is an individual, company, or institution that owns at least one share in a company. They are essentially the owners of the company and have a claim on part of the company’s assets and earnings.
- Shareholders have certain rights, such as the right to vote on issues such as corporate policy and board of directors, the right to share in the company’s profits, the right to receive annual reports, and the right to sue the company for wrongful acts.
- The two types of shareholders are common shareholders and preferred shareholders. Common shareholders have voting rights but are last in line to receive any remaining assets if the company goes bankrupt. Preferred shareholders, on the other hand, have a higher claim on dividends and assets if the company goes bankrupt, but they do not have voting rights.
Importance
The term “shareholder” is crucial in finance as it refers to an individual or entity that owns shares in a corporation, making them partial owners of the company.
Shareholders play a significant role in the dynamics of the corporation as they have voting rights that can influence the strategic decisions of the company.
They are often seen as the ultimate owners who drive corporate governance and ensure the management’s accountability.
Furthermore, shareholders are significant as they bear the risk of the company’s performance, where they stand to gain through dividends and capital appreciation when the company does well but may face losses when the company underperforms.
Thus, the position and actions of shareholders are fundamental to the functioning, direction, and performance of a corporation.
Explanation
A shareholder, in the context of finance, is a person, entity or institution that owns shares in a corporation or a mutual fund. The purpose of being a shareholder is to participate, either directly or indirectly, in the management of the corporation, share in the profits and potentially gain from the increase in the value of the shares. They essentially invest their capital in a corporation with the aim of getting returns on their investment.
Shareholders play a significant role in the governance of a corporation. They have the right to vote on crucial corporate matters such as the appointment and re-election of directors to the corporate board, issuance of new securities, corporate policy changes, and more. In many cases, they can influence managerial decision-making processes.
If the corporation makes profits, these are often distributed as dividends to the shareholders. In case of liquidation, the remaining assets of the corporation are also distributed among the shareholders. Hence, being a shareholder allows individuals or entities to participate in the profits and decision-making processes of a corporation.
Examples of Shareholder
Berkshire Hathaway Shareholders: Berkshire Hathaway is a multinational conglomerate holding company headed by Warren Buffet. Its shareholders are part owners of the various businesses that Berkshire Hathaway owns and invests in and are entitled to a proportion of the profits generated by these companies. They also have the right to vote on certain decisions about the company’s direction.
Apple Shareholders: This refers to the individuals or entities that own stock in Apple Inc. As shareholders, they have rights to the company’s assets and earnings. For example, when Apple, a publicly-traded company, records a profit, they often distribute a portion of this profit back to its shareholders in the form of dividends.
Amazon Shareholders: Those who have purchased stock in Amazon.com, Inc. are its shareholders. They have the potential to benefit financially if the company performs well (through increases in stock price and/or dividends), but also bear the risk if the company performs poorly. In addition to its profitability, Amazon shareholders can also influence the direction of the company through voting on proposals and electing members to the board of directors.
Frequently Asked Questions about Shareholders
What is a Shareholder?
A shareholder, also known as a stockholder, is an individual or institution that legally owns one or more shares of the share capital of a public or private corporation. Shareholders may be referred to as members of a corporation.
What are the rights of a Shareholder?
Shareholders have various rights such as the right to vote on major corporate decisions, the right to share in the company’s profits, the right to inspect corporate books and records, the right to bring a derivative suit, and the right to attend annual meetings.
What are the responsibilities of a Shareholder?
Apart from the basic responsibility of making informed decisions when voting on corporate issues, shareholders have no other specific duties. Their liability is limited to the investment they’ve made in the corporation’s stock.
What is the difference between a Shareholder and a Stakeholder?
A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. These reasons often include employees, customers, suppliers, creditors, and other members of the community.
How do Shareholders make money?
Shareholders can make money in two ways: by selling the shares they own at a higher price than they paid (capital appreciation), or by receiving a share of the corporation’s profits in the form of dividends.
Related Entrepreneurship Terms
- Dividends
- Equity
- Stockholder’s equity
- Shares outstanding
- Preferred stock
Sources for More Information
- Investopedia: A comprehensive online resource dedicated to empowering the education and better understanding of financial terms and concepts, including shareholder.
- The Balance: This site provides expertly crafted content to help you understand all aspects of finance and investing, including shareholder roles and responsibilities.
- Financial Express: A comprehensive online financial and business news provider offering insightful information on a broad range of financial topics.
- The Harvard Law School Forum on Corporate Governance: An authoritative platform offering in-depth articles and discussions about various aspects of corporate governance, including shareholder rights and responsibilities.
