Shareholder (Stockholders): Meaning, Equity, Rights, & Types
If you invest in the stock market, you know you are a shareholder. But did you know about the perks of being a shareholder, if not, then read this article is for you! This article covers the topic of shareholders in detail. We will look at the shareholders' meaning, types of shareholders, roles, responsibilities, rights, and importance of shareholders. We will also look at the difference between shareholders and stockholders. Knowing this information will help you reap the benefits of being a shareholder.
Who Is A Shareholder?
An individual or organization that owns shares or stocks in a firm is referred to as a shareholder. When a company wants to grow or expand, it must raise money from the market by issuing shares of stock or debentures (i.e., loans). Therefore, those receiving shares are referred to as shareholders. These people or things also referred to as stockholders, are a company's partial owners and have a right to a portion of its revenues.
Dividend payments or an increase in stock value are two ways these earnings are distributed to stockholders. Additionally, shareholders lose money on their investment when a company's share price declines due to losses it experiences during a particular year.
Types Of Shareholders
Many businesses issue common and preferred stock, which directly translates to two sorts of shareholders: common and preferred.
The owners of a company's common stock are known as common shareholders. They are the more common stockholders and have the right to vote on decisions affecting the company. Additionally, they can use their right to bring collective legal action against any situation detrimental to the organization. These shareholders may get dividend payments because they have common stock that gives them a stake in the company.
On the other hand, the distribution of a company's profits is prioritized for preferred investors above regular stockholders. They own a share of the company's preferred stock, as opposed to common shareholders, and have no voting rights or influence over how the business is run. They cannot interfere with the operation of the company's management because they do not have voting rights. Preference shareholders are also eligible for fixed dividend rates, even when the company's success is at risk.
Roles And Responsibilities Of A Shareholder
Let's look at some of the responsibilities of a shareholder.
- Set the directors' pay. The salary must be sufficient to cover the director's living expenses and the city's costs without undermining the company's offers.
- Make sure the dividends are paid out after choosing the pay-out %.
- Pondering and selecting the authority they would give the board of directors, such as the right to appoint and dismiss them from their positions
- Making choices about matters over which the directors have no control, such as making amendments to the company's constitution
- Examining and approving the company's financial statements
Rights Of Shareholders
Shareholders of a company are entitled to certain rights. These rights are-
Shareholders have the right to vote on company-specific issues that affect the corporation.
The right to summon general gatherings
Shareholders have the right to convene a general meeting. The Company Law Board may also be contacted for assistance if general body meetings are not conducted legally.
Partial Ownership of Firm
In proportion to the number of shares registered in the holder's name, they own part of the corporation.
Right to appoint the company auditors.
According to the Companies Act of 2013, the board of directors must appoint the company's initial auditor. The appointment is typically made for a five-year term, and it may be extended with the passage of a motion at the annual general body meeting. Additionally, the audit committee and board of directors recommend that the shareholders meet them at the annual general body.
Right to Receive Dividends
In the company's annual general meeting, they can receive the dividend amount decided. They receive the dividend for the shares they own.
Right to get copies of financial statements.
Financial statements are accessible to shareholders as a right. Every company shareholder must receive a quarterly or annual statement containing the company's financial statements.
Right to Sue Concerned for Wrongful Acts
If they discover any wrongdoing on the part of the corporation, they may choose to bring a lawsuit. Wrongful behaviour may involve violations of morality, discrimination, fraud, etc.
Importance Of Shareholders-
This is how a shareholder is important for a business-
These shareholders appoint top management, which directly impacts how the company operates.
In return for ownership rights, stockholders provide finance to businesses.
Governing A Company
Public company board members keep the list of shareholders transparent. The shareholders are thoroughly informed on the state and operations of the firm, which helps keep the board members in check.
Control Over A Company
Shareholders can use their ability to select employees to direct a company's operations.
Shareholder vs. Stakeholder
Many people mistakenly believe that the terms "shareholder" and "stakeholder" are synonymous since they are frequently used interchangeably. The two names don't, however, have the same meaning.
Undoubtedly, all shareholders are the company's stakeholders—indeed, they are its most important stakeholders. The opposite, however, is untrue. By purchasing shares of a corporation, shareholders acquire a portion of that business. Since you own stock, you may also be referred to as a stockholder. Stakeholders, like shareholders, are interested in a company's performance even though they do not own any equity. However, they might or might not be interested in making money.
If you make stock market investments, you may already be a shareholder, or you may be able to become one. Like anything else in the stock market, there is a chance for tremendous gain and significant risk, which can result in losses.