A shareholder is a person, company, or organization that holds stock in a particular company or organization.
To be a shareholder, you must own at least one share in a company’s stock or mutual fund.wner.
A shareholder is a partial owner of a company who earns through dividends. Payment is done when the company that you have shares in declares its dividends.
Because they partially own the company, shareholders have a right to vote on certain matters about the company and be elected to a seat on the board of directors.
In case the company is dissolved or liquidated, shareholders receive a portion of that money depending on the number of shares they had invested in the company.
Roles of Shareholders in Business
Being a shareholder does not just involve you receiving a share of profits made by the company, it also includes sharing responsibilities in the day-to-day running of the company.
Some of the common roles of shareholders include:
- Deciding in amount what the directors of the company will receive as their salaries.
- Checking and making approvals of the financial statements of the company.
- Making decisions on issues that the company directors have control over.
- Voting and electing the board of directors who will lead the company
Types of Shareholders
Equity Shareholder
These are the main type of shareholders and are the owners of the company. They have voting rights in the company depending on how many shares they own.
Usually, they have the power to question the decisions of the management of the company on the daily affairs of the company.
In case there is an issue to be voted against and a majority of these types of shareholders oppose the motion, then you will have to abide by their decision.
Equity shareholders exercise more power in a company because of the amount of capital they have invested in it.
Preference Shareholders
The main difference between equity and preference shareholders is that these types of shareholders do not have any voting rights in the company affairs.
They cannot interfere with the daily running of the company and, therefore, cannot prevent the company’s management from exercising their duty.
You are entitled to receive the dividend income out of any profits made by the company as a preference shareholder.
Debenture Shareholders
Debenture holders are the creditors of the company and do not have any voting rights.
Instead of receiving dividends made from the profit made, they receive interest payments from the company.
Normally, this interest is paid at a fixed rate decided between the company and the debenture holders.
Debentures are paid first if the company is liquidated or dissolved because they are the company’s creditors.
In conclusion:
- The easiest way to differentiate between shareholders is to identify the role they play in the company and whether they have voting rights or not.
- Shares are issued to raise capital for a company and the owner of the shares are called shareholders.
- Shareholders own a part of the company based on the number of shares they have.
- Not all shareholders have equal rights. It depends on the type of shares they own.
