A shareholder or stockholder of a company or organization is an individual or another organization (including a corporation) that legally owns partial or full stock in a public or private corporation. Since the corporation itself is a separate legal entity, stockholders only own the stock and not the company itself. However, a stockholder is generally the owner of the company and due to that status; he/she enjoys special privileges depending on the class of their shares.
These stockholders have the right to:
- Dividends declared by the company to the percentage of their shares
- Sell shares; be it to the company or any other third party
- Vote on the directors nominated by the Board of Directors
- To pass shareholder resolution which generally requires more than 75% of majority’s vote to assign director, remove them or nominate an auditor
- Nominate an auditor for the company
- Purchase new right issue shares if they are issued by the company
- The remaining assets left after the liquidation of the company
Stockholders can be separated into different classes depending on the class of share they purchase and different rights are attached to these classes. Two of the most commonly known classes are:
These are the true owners of the company as they suffer extreme risks regarding their investments. This class has all the rights to vote and nominate and they are allowed to participate in the general meetings of the company. However, dividends are shared among this class in the last, after the preference shareholders.
Preference shareholders are sort of creditors of the company and due to this, the risks and rewards attached to them are not as high as the ordinary shareholders have. They are also not allowed to participate in the general meeting and have no right to cast their vote. This class gets a pre-arranged percentage of the total company’s profits as dividends and has a right to paid before the ordinary shareholders.
It is a general misconception to confuse the term stakeholder with the stockholder. Stakeholder refers to any person or corporation that is involved directly or indirectly with the business of the company.