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What is 'Shareholder'

A shareholder, commonly referred to as a stockholder, is any person, company, or 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 and the price of its stock declines, however, shareholders can lose money.

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. If the company becomes insolvent, its creditors cannot demand payment from shareholders.

Although they are owners of the company, shareholders do not manage operations.  A board of directors is appointed to govern the activities and operations of the company.

Shareholder Rights

Shareholders enjoy certain rights, which are defined in the corporation's charter and bylaws. Shareholders have the following rights:

  • to inspect the company's books and records
  • to sue the corporation for misdeeds of the directors and officers
  • Common shareholders are entitled to vote on major corporate matters, such as who sits on the board of directors and whether a proposed merger should occur. 
  • If a company liquidates its assets, its shareholders have a right to a proportionate allocation of the proceeds. However, creditors, bondholders, and preferred stockholders have precedence over common stockholders.
  • to receive a portion of any dividends the company declares.
  • to attend, in person or via conference call, the corporation's annual meeting to learn about the company's performance 
  • Common shareholders who do not attend the voting meeting 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. Most shareholders are common stockholders primarily because common stock is less expensive and more plentiful than preferred stock.  Common stock is generally more volatile and more likely to generate profits compared to preferred stock.  Preferred stockholders generally have no voting rights because of their preferred status.  They receive fixed dividends, generally larger than those paid to common stockholders, and their dividends are paid before common shareholders.  These benefits make preferred shares a more useful investment tool for those primarily looking to generate annual investment income.

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