Loading the player...

What is a 'Shareholder'

A shareholder is any person, company or other institution that owns at least one share of a company’s stock. Because shareholders are a company's owners, they reap the benefits of the company's successes in the form of increased stock valuation. If the company does poorly, however, shareholders can lose money if the price of its stock declines.

BREAKING DOWN 'Shareholder'

Unlike the owners of sole proprietorships or partnerships, corporate shareholders are not personally liable for the company's debts and other financial obligations. This means that if the company goes under, its creditors cannot demand payment from shareholders like they could from the owners of privately held entities.

Also unlike the leadership of other business types, companies with shareholders rely on a board of directors and executive management to run things — meaning the actual owners, the shareholders, don't have much say in the day-to-day operation of the business.

A shareholder may also be referred to as a stockholder.

Shareholder Rights

Though they are not involved in most decisions, shareholders do have rights, which are defined in the corporation's charter and bylaws. Shareholders have a right to inspect the company's books and records or sue the corporation for misdeeds of the directors and officers, for example. Common shareholders are also entitled to vote on major corporate matters, such as who sits on the board of directors and whether a proposed merger should go through. Most importantly, in the event that a company liquidates its assets as a result of bankruptcy or dissolution, its shareholders have a right to a proportionate allocation of the proceeds. However, creditors, bondholders and preferred stockholders have precedence over common stockholders in a liquidation. Shareholders also have a right to receive a portion of any dividends the company declares.

Shareholders also have the right to attend the corporation's annual meeting to learn about the company's performance, or listen to the meeting via conference call. Common shareholders who cannot or do not wish to attend a meeting to vote on a given matter have the right to vote by proxy through the mail or online. The specific rights allocated to both common and preferred shareholders are outlined in each company's corporate governance policy.

Common vs. Preferred Shareholders

Many companies elect to issue two types of stock: common and preferred. Because common stock tends to be cheaper and more plentiful than preferred stock, most shareholders own this type of stock, meaning they can vote on company issues and receive dividends only when the board of directors deems it a suitable use of company funds.

While preferred shareholders do not enjoy the same voting rights as common shareholders, preferred shares typically pay a larger dividend than their common counterparts. In addition, preferred share dividends are guaranteed and must be paid each year prior to any dividends being issued to common shareholders, making preferred shares a more useful investment tool for those primarily looking to generate annual investment income.

RELATED TERMS
  1. Preference Shares

    Company stock with dividends that are paid to shareholders before ...
  2. Voting Right

    The right of a stockholder to vote on matters of corporate policy ...
  3. Shareholders' Agreement

    An arrangement among a company's shareholders describing how ...
  4. Stock

    A type of security that signifies ownership in a corporation ...
  5. Common Shareholder

    An individual, business or institution that holds common shares ...
  6. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
Related Articles
  1. Investing

    Who is a Shareholder?

    A shareholder is a person, company or other entity that owns at least one share of a company’s stock.
  2. Managing Wealth

    Knowing Your Rights As A Shareholder

    We delve into common stock owners' privileges and how to be vigilant in monitoring a company.
  3. Investing

    What are Preference Shares?

    Preference shares, also referred to as preferred shares, are equity shares that give the shareholders certain rights ahead of common shareholders. For instance, when the corporation declares ...
  4. Managing Wealth

    Knowing Your Rights As A Shareholder

    Common shareholders typically enjoy six main rights.
  5. Managing Wealth

    The Advantages of Preferred Dividends

    Preferred dividends are cash distributions a company pays on its preferred shares.
  6. Investing

    What is the Shareholder Equity Ratio?

    The shareholder equity ratio shows how much money shareholders will receive if a company has to liquidate its assets.
  7. Managing Wealth

    An Example of Dividends in Arrears

    Learn about the concept of dividends in arrears and which shares of stock guarantee payment of accrued dividends even if the company doesn't turn a profit.
  8. Investing

    Which Is Best: Cash Dividend Or Stock Dividend?

    Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.
  9. Investing

    Proxy Voting Gives Fund Shareholders A Say

    You have the right to take part in important company decisions - even if you cannot attend the meetings.
  10. Managing Wealth

    An Introduction To Shareholder Activism

    The secret to being an activist shareholder is to ask the right questions.
RELATED FAQS
  1. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
  2. What are some characteristics of ordinary shares?

    Read about some of the primary characteristics of ordinary shares, also known as common shares, including voting rights and ... Read Answer >>
  3. What can shareholders vote on?

    Understand the usual voting rights of common stock shareholders, along with the importance of shareholders exercising their ... Read Answer >>
  4. What are the advantages and disadvantages of preference shares?

    Learn about the advantages and disadvantages of preference shares to both investors and issuing companies, including the ... Read Answer >>
  5. How do a corporation's shareholders influence its Board of Directors?

    Find out how shareholders can influence the activity of the members of the board of directors and even change official corporate ... Read Answer >>
  6. What is the investor rights movement?

    The investor rights movement, also called shareholder activism, refers to the efforts of shareholders of publicly traded ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center