Individuals that own common shares of company stock are viewed as the true owners of that company. As such, a common shareholder has specific privileges and rights that are governed by the laws that prevail in the state where the company is headquartered.
The most important rights that all common shareholders possess include the right to share in the company's profitability, income, and assets; a degree of control and influence over company management selection; preemptive rights to newly issued shares; and general meeting voting rights.
Knowing Your Rights As A Shareholder
The Right to Share in Profitability
As partial owners of the company, common shareholders have the right to participate in a company's profitability for as long as they own the shares. The division of profits is based on the number of shares owned by a shareholder, and gains can be substantial to shareholders over time.
In addition to a share in profits generated by the company, shareholders also have rights to income distributions through dividend payments. If a company's board of directors declares a dividend in a certain period, common shareholders are in line to receive it.
Dividends are not guaranteed, however. If the company is liquidated, common shareholders have the right to assets and income of the company after bondholders and preferred shareholders are paid.
- Common shareholders possess the right to share in the company's profitability and gains from its stock price appreciation.
- Shareholders may also share in a company's profits by receiving cash or stock payments from the company—called dividends.
- Common shareholders can also influence a company's management by voting to elect the board of directors, who appoint the CEO.
- If a company issues new shares to the public, current shareholders have the right to buy shares before they're offered to new shareholders.
The Right to Influence Management
Common shareholders also have the right to influence company management through the election of a company's board of directors. In smaller companies, the president or chairperson of the board is typically the individual who owns the largest share of common stock. Larger companies may have greater diversity in the common shareholder investor pool.
In either case, individuals in the management of the company do not own enough of a stake in the company to influence who sits on the board of directors. Shareholders have the right to influence who holds management positions through control over the election of board members.
Shareholder rights include the right to share in the company's profitability, income, and assets; a degree of control and influence over company management selection; preemptive rights to newly issued shares; and general meeting voting rights.
The Right to Buy New Shares
Common shareholders also have preemptive rights. If the company issues new shares to the public, current shareholders have the right to buy a specific number of shares before the stock is offered to new potential shareholders. Preemptive rights can be valuable to common shareholders, as they are often provided at a subscribed price on a per-share basis.
The Right to Vote
Arguably, the greatest right for common shareholders is the ability to cast votes in a company's annual or general meeting. Major shifts within a publicly-traded company must be voted on before changes can take place, and common shareholders hold the right to vote either in person or via proxy. Most common shareholder voting rights equate to one vote per share owned, resulting in greater influence from shareholders who own a larger number of shares.
The Right to Sue for Wrongful Acts
Common shareholders who feel their rights have been violated also have the right to sue the issuing company. A court has the power to enforce common shareholder rights when corporations are found to have violated their rights, either through a single shareholder complaint or as a class-action lawsuit.