Shareholders - Definition, Types, Roles & Responsibilities

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    Table of Contents

    what is shareholders

    What Is A Shareholder?

    A shareholder can be an individual or a corporate entity that owns at least one share in a company. Shares are units of equity ownership that a company lists for public issues to raise capital for their business. The individuals or companies who buy these shares become the shareholder of that company and have the right to a percentage of ownership of that company. When shareholders invest their money in the shares of a company, they generally receive a dividend against their shares from the profits that the company earns.

    Role Of A Shareholder

    A shareholder of a company does not only invest for profits. Shareholders have many more responsibilities when they buy ownership of a company. The first responsibility of a shareholder is deciding what kind of powers the directors of the company will have. They also have the right to remove or appoint directors from their designated posts. Shareholders are responsible for deciding the salaries of the directors. They also have the authority to check and approve the financial statements of the company.

    Types of Shareholders

    The two types of shareholders based on their ownership and the type of shares they buy are – Common Shareholders and Preferred Shareholders.

    Common shareholders are those individuals, corporate entities, or organizations that have invested in the common stocks of a company and hence become the company’s common shareholders. These types of shareholders have an ownership stake in the company which means that they have a fraction of ownership of the company. Common shareholders enjoy the right to vote in company matters and corporate issues that may occur. When a company liquidates, the common shareholders are the last ones to get paid and also get the rights to the assets of the company, after the debtors and preferred shareholders.

    Preferred shareholders are the type of shareholders who own the preferred shares of a company. Preferred shares are those shares that have a fixed amount of dividend being paid to their shareholders, unlike common shares where the dividends change according to the profit situation of the company. These shareholders do not have any right to vote on the corporate issues and business decisions of the company. Preferred shareholders are paid before the common shareholders when a company goes into liquidation.

    Read More: Joint Stock Company

    Shareholder vs Subscriber

    A shareholder is an individual or a legal entity that purchases the shares of a company to become an owner of the company. If a company has only one shareholder, the entire ownership of the company resides with that entity. Mostly, companies have multiple shareholders indicating that each one of them has part ownership in that company. A subscriber on the other hand is not the owner of any shares in a company. A subscriber is an individual or corporate entity who was a shareholder only at the time of formation of that company. That entity does not remain a permanent shareholder and only stays as the first shareholder at the time of incorporation. A company can have multiple individuals being its subscribers at the time of formation of that company.

    Shareholder vs Stakeholder

    The stakeholders of a company are different from its shareholders. The shareholders of a company are always its stakeholders as well, but it is not true the other way round. The stakeholders are not always the shareholders of the company and can be other individuals such as employees, bondholders, dependent customers, suppliers, and vendors. Stakeholders are reliant and bonded with a company on a long-term basis as compared to the shareholders. They are affected much more dynamically by the performance of a company than the owners and shareholders.

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      Conclusion

      Shareholders are those legal entities that own a fraction of a company by investing in their shares. There are different types of shareholders and each of them enjoys different rights, ownership, and dividends of the company they have invested in. Common shareholders enjoy ownership and voting rights while preferred shareholders enjoy fixed dividends and liquidation preference from the business. Shareholders are different from subscribers and stakeholders. Subscribers are the initial shareholders who incorporate the company and do not remain its permanent shareholders. Every shareholder of a company is its stakeholder as well, but every stakeholder is not a shareholder and can be an employee, customer, supplier, or any other individual getting affected by the performance of the company.

      FAQ’s

      In order to become a shareholder of a company, you need to buy at least one share. When you invest in at least one share of any company, you become its shareholder and have a percentage of ownership in the capital of that company.

      The shareholders who have invested in preferred shares get fixed dividends from the profits that the company generates. The common shareholders do not receive any profits, however, they anticipate the growth of the price of the stocks they own when a company is making profits.

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