Shareholder or Stockholder: Definition, Types, and Rights

Shareholders or stockholders play a crucial role in the success of a company. They are individuals or institutions that own a portion of a company’s stock.

Investing in shares can be a great way to build wealth over time. Shares offer the potential for capital growth and income through dividends, meaning investors can benefit from both the appreciation of the share price as well as regular income.

Additionally, with the wide range of sectors represented in the share market, investors can diversify their portfolio and reduce risk. This can be a great way to build wealth in the long term, with the potential to outperform other asset classes.

What is the meaning of Shareholder or Stockholder?

By understanding the term – shareholders, companies can ensure that it is run in the best interests of all stakeholders. We wish to introduce you to the role of shareholders and the importance of understanding them in detail.

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What is a Shareholder?

A shareholder is a person, company or other entity that owns at least one share of a company's stock. Shareholders are essentially owners of the company and, as such, are entitled to a share of the company's profits, as well as a vote in certain corporate decisions. Shareholders are also known as stockholders.

If the company is liquidated and its assets are sold, the shareholder may be entitled to a part of the proceeds, provided that all creditors have been paid. The benefit of being a stockholder in such a scenario is that, since they are not responsible for the debts and obligations incurred by the company, creditors cannot compel stockholders to pay them.

Duties and Responsibilities of a Shareholder

Being a shareholder entails more than just acquiring profits; it also entails other responsibilities. Let's take a look at some of these duties.

Attending and Voting at Shareholder Meetings: Shareholders have the right to attend and vote at the Annual General Meeting of the company. At these meetings, shareholders can discuss matters related to the company and voice their opinion on key decisions, such as the appointment of directors, the approval of financial statements, and the approval of dividend payments.

Receiving Dividend Payments: Shareholders are entitled to receive dividend payments from their company. Dividends are usually paid on a quarterly or semi-annual basis, depending on the company's policy.

Participating in Capital Raising: Shareholders can participate in capital raising activities such as IPOs, rights issues and other forms of equity capital raising. This allows shareholders to purchase additional shares in the company at a discounted price.

Having a Say in Management: This can be a duty as well as a right of the shareholders to have a say in the management of the company. Shareholders can elect board members at the Annual General Meeting and can also vote on key decisions, such as mergers and acquisitions.

Obeying Corporate Laws: Obeying corporate laws is a duty and responsibility of shareholders because corporate laws protect the rights and interests of shareholders. These laws ensure that the company is run in an ethical, fair, and transparent manner.

By following the corporate laws, shareholders can trust that their investments are being managed responsibly and that the company is adhering to accepted standards of conduct. Obeying corporate laws also helps to ensure that the company is compliant with all applicable legal requirements, which is essential for the long-term health of a business.

Types of Shareholders

There are different types of shareholders that are differentiated on the basis of diverse aspects like the number of rights and benefits from dividends.

a. Common Shareholders

b. Preferred Shareholders

c. Institutional Shareholders

d. Insiders

Common shareholders are individuals or organizations that own common stock in a company. They are owners of the corporation and are entitled to voting rights, receive dividends, and benefit from any increase in the stock price. They also have the highest claim on assets and earnings.

Preferred shareholders are individuals or organizations that own preferred stock in a company. They are owners of the corporation and receive a fixed dividend, usually paid out quarterly. They do not have voting rights, but they have a higher claim on assets than common stockholders. In the event of liquidation, preferred stockholders are paid out before common stockholders.

Institutional shareholders are large organizations that own shares of a company’s stock. These organizations include pension funds, mutual funds, hedge funds, and insurance companies. Institutional investors have a significant influence on the stock market and can have an effect on the performance of a particular company.

They have the potential to move markets and can often be a source of a company's financing. These investors can act as a stabilizing force in an otherwise volatile market and can also help to ensure long-term growth.

Insiders are individuals or entities that own shares in a company and are also connected to the company in some capacity. This could include founders, board members, executives, and other key personnel who have a vested interest in the company's success.

Insider shareholders have access to confidential information about the company, which gives them an advantage over other investors in making decisions about when to buy or sell shares. As a result, insider shareholders must abide by certain laws and regulations to ensure they do not use their privileged information to unfairly benefit themselves.

Benefits of Being a Shareholder

Shareholders provide capital to the company and share in the profits and losses. They also have certain rights, such as the right to vote on important decisions, receive dividends and sell their shares in the company.

However, the benefits of being a shareholder extend beyond these elements. Let’s learn about them here.

Profit Sharing:  This is a form of corporate ownership in which a portion of the company’s profits are distributed proportionally to shareholders based on the number of shares they own. This type of arrangement gives shareholders an incentive to increase the value of the company and its stock. Profit sharing is a way to reward shareholders for their investment, as they are compensated financially for any profits the company makes.

Additionally, it encourages shareholders to remain invested in the company and stay loyal to it over the long-term.

Potential for Capital Appreciation: One of the main benefits of being a shareholder is the potential for capital appreciation. This means that the value of your shares can increase in value over time, allowing you to make a profit when you decide to sell them.

Dividend Income: Most companies pay out dividends to their shareholders in the form of cash or additional shares. This can provide a regular income stream and gives shareholders the opportunity to increase their wealth over time.

Voting Rights: Shareholders have the right to vote at shareholder meetings and are able to influence how the company is managed. This can be a powerful way for shareholders to ensure that their interests are represented.

Access to Business Information: As a shareholder, you are entitled to receive certain information about the company, such as financial statements, announcements, and performance reports. This can help you to make more informed decisions about your investment.

Potential for Influence: Being a shareholder gives you the opportunity to influence the strategy and direction of the company. This can be a great way to ensure that the company is managed in the best interests of shareholders and the wider community.

Access to Company Information: Shareholders can access company information on a variety of different platforms, including company websites, news articles, and financial reports. This can help shareholders make informed decisions about the company and its performance, which can lead to increased returns on their investments.

Shareholder Vs. Stakeholder

Shareholder and stakeholder are terms that are used to refer to individuals or entities with an interest in a company or organization. They are typically used interchangeably. However, the two differ due to certain points.

Shareholders are individuals or entities that own shares of the company’s stock, while stakeholders are individuals or entities that have an interest in the company’s success, but may not have a direct financial interest.

Shareholders have a direct financial interest in the company, as they own a portion of the company’s stock. Stakeholders, on the other hand, can have an indirect financial interest, such as customers, employees, suppliers, the community, or even the government.

Shareholder Vs. Subscriber

As learned so far, shareholders are owners of a company. On the other hand, the subscribers are customers who purchase products and services from the company. Shareholders are generally more invested in the company, as they own a portion of the company, while subscribers are simply customers who buy products. Shareholders usually have more rights and privileges than subscribers, such as the right to vote on company decisions and to receive dividends from company profits.

Shareholders are also more likely to have a say in the company’s decisions and the direction in which it goes, while subscribers are simply customers who purchase the company’s products and services. Subscribers do not typically have the same rights or privileges as shareholders.

Preferred Vs. Common Shareholders

We have had a look at the types of shareholders, of which preferred and common are the two most popular types. This following points help us further understand the difference between the terms.

  1. Preferred shareholders typically have priority when it comes to receiving dividends and assets in the event of liquidation.
  2. Preferred shareholders do not usually have voting rights, while common shareholders do.
  3. Preferred shareholders may receive a predetermined dividend, while common shareholders may receive a variable dividend that is dependent on the company’s performance.
  4. Preferred shareholders have priority when it comes to receiving dividends, while common shareholders receive dividends only after the preferred shareholders are paid.
  5. Preferred shareholders have priority when it comes to the repayment of capital should the company be liquidated.
  6. Preferred shareholders typically have a higher claim on company assets than common shareholders.
  7. Preferred shareholders may be guaranteed a return on their investment, while common shareholders take on a higher risk.

Shareholder Rights

Shareholders enjoy the rights and privileges accorded to the owners of a company's stock. Generally, shareholders are granted the right to vote on certain company matters, such as the election of directors. They are also granted the right to approve of major corporate actions, such as mergers and acquisitions.

They may also receive dividends, a share of the company's profits, and the right to inspect corporate documents. Shareholders may also have the right to sue the company or its officers and directors for wrongful conduct or mismanagement. This is known as a "derivative action."

Moreover, state laws and the company's charter or bylaws may grant additional rights to shareholders, such as the right to call special meetings or the right to seek appraisal of their shares in the event of a merger or sale.

Also, shareholders have the right to sell their shares at any time. They may want to do this to take advantage of any potential capital gains or to diversify their investments.

Shareholders also have the right to receive financial information about the company. This includes the right to receive annual reports, as well as financial statements and other documents. Shareholders also have the right to inspect corporate books and records.

Aside from these, shareholders have the right to transfer their shares to another person or entity. This is known as a "stock transfer." A stock transfer must be done in accordance with the company's charter and bylaws, as well as applicable state laws.

Shareholders and the Internal Revenue Service (IRS)

Shareholders have an obligation to report any income they receive from their investments, including dividends, to the Internal Revenue Service (IRS). The IRS requires investors to report any income they receive from their investments and pay taxes on that income. Shareholders must also report any gains or losses from the sale of their investments.

The IRS also requires shareholders to keep accurate records of their financial dealings, including the purchase and sale of their investments. Failure to do so could result in penalties or other consequences.

The IRS also has specific rules regarding how much a shareholder can deduct in taxes for investment expenses such as transaction fees, investment advisory fees, and other costs associated with investing. Shareholders should familiarize themselves with these rules to ensure they are in compliance with the IRS.

Conclusion

Shareholders, also known as stockholders, are the owners of a company's outstanding shares. This represents a residual portion of the corporation's assets and earnings as well as a percentage of the voting power of the company.

The right of stockholders to share in the distribution of corporate assets includes the right to receive dividends (if paid) and the potential right to profit from the sale of their shares on the stock market. By purchasing common stock in corporations from the company directly or through brokers, individuals can become shareholders.

In many nations, businesses may also provide employee stock options as a perk for staff members. However, common shareholders are the last to be compensated in the event of a bankruptcy.

How can Deskera Help You?

Using Deskera’s platform can benefit shareholders in many ways. Deskera’s cloud-based ERP, CRM and HRMS solutions offer a range of benefits that can help shareholders make better decisions.

From streamlined operations, improved collaboration, and enhanced security, the platform offers a one-stop solution to all investment issues.

Deskera Books is an accounting and finance solution that provides investors with real-time financial insights, allowing them to make more informed investment decisions.

Deskera's enterprise resource planning (ERP) solution assists investors in more efficiently managing their operations and gaining a better understanding of their entire business.
Deskera also provides investors with a suite of analytics, reporting, and forecasting tools to help them gain a better understanding of their financial performance.
Deskera CRM is a cloud-based customer relationship management (CRM) system that assists businesses in managing their sales, marketing, customer service, and other business functions.

Deskera People is a cloud-based Human Resource Management System (HRMS) that assists businesses in managing their people and processes.
Payroll management, attendance tracking, employee self-service, recruitment management, and performance management are just a few of the HR tools and capabilities it provides.

Streamline Your Business Processes with Deskera
Ensure Increased Productivity and Profitability

Key Takeaways

  • A shareholder is a person, company or other entity that owns at least one share of a company's stock.
  • Shareholders are essentially owners of the company and, as such, are entitled to a share of the company's profits, as well as a vote in certain corporate decisions. Shareholders are also known as stockholders.
  • If the company is liquidated and its assets are sold, the shareholder may be entitled to a part of the proceeds, provided that all creditors have been paid. The benefit of being a stockholder in such a scenario is that, since they are not responsible for the debts and obligations incurred by the company, creditors cannot compel stockholders to pay them.
  • Shareholders may have to fulfill certain duties such as participating in capital raising, attending and voting at shareholder meetings, and obeying corporate laws.
  • There are four categories of shareholders which are common, referred, institutional, and insiders. Of these, the common and preferred are more prevalent.
  • Shareholders also enjoy certain benefits which include profit sharing by the company, dividend income, voting rights, access to business information, and potential for influence.
  • Shareholder and stakeholder are terms that are typically used interchangeably. However, the two differ due to certain points.
  • Shareholders have a direct financial interest in the company, as they own a portion of the company’s stock. Stakeholders, on the other hand, can have an indirect financial interest, such as customers, employees, suppliers, the community, or even the government.
  • Shareholders are generally more invested in the company, as they own a portion of the company, while subscribers are simply customers who buy products.
  • Shareholders have the right to sell their shares anytime. Other rights include having access to financial information about the company, stock transfers, receiving dividends, and voting rights.
  • Shareholders have an obligation to report any income they receive from their investments, including dividends, to the Internal Revenue Service (IRS). The IRS requires investors to report any income they receive from their investments and pay taxes on that income.
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