What is a 'Common Shareholder'

A common shareholder is an individual, business or institution that holds common shares in a company, giving the holder an ownership stake in the company. This will also give the holder the right to vote on corporate issues such as board elections and corporate policy, along with the right to any common dividend payments.

BREAKING DOWN 'Common Shareholder'

In the case of bankruptcy, common shareholders are typically the last to receive anything from liquidation. First, companies pay out all debtholders. If there is anything remaining after that, then preferred shareholders are paid, followed by common shareholders. Commons shares may also come in classes such as Class A or B, with each level having different voting rights and dividend rights.

Common shareholders might also be granted preemptive rights, which would let them buy additional shares, for instance in a secondary offering, before they are made available for public purchase on the markets.

How the Rights of Common Shareholders Can Affect a Company

There are a variety of rights that common shareholders possess regarding the direction and major decisions of a company. The voting powers of these shareholders allow them to contribute to the choices made by the company regarding such actions as how to address offers of acquisition from other entities or individuals. They might also have a hand in voting on the composition of the board of directors who are intended to represent the interest of shareholders when the company makes strategic plans. While individual shareholders tend to own only a small fraction of the overall shares of a company, especially compared with majority shareholders, they can collectively present a considerable voting segment. Such activity, if many shareholders are persuaded to take joint action, can be the acting force in proxy fights for control of company.

Shareholders also have rights regarding access to the records of the company. This gives them a measure of control to enforce accountability on the part of management.  If there is act of wrongdoing by officers or directors of the company that negatively affects its shares or overall market value, common shareholders might pursue a derivative suit, on behalf of all shareholders, against the ones believed to be doing harm to the company. If a particular group of shareholders believes the company’s leadership has mismanaged operations, or otherwise done harm to the organization’s worth and standing, they might file a class action lawsuit to seek damages for themselves. This may include how the company’s management handled bids to acquire the business as well as growth strategies.

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