Shareholders, also known as stockholders, are investors that own stock in a company. When corporations need to raise capital, it is common for them to issue shares of stock that serves as a unit of ownership. Investors are allowed to buy and sell these shares if the company is publicly traded in the stock market. Investors benefit from owning shares of stock through the capital appreciation of the stock price. By the same token, shareholders also accept a level of risk because due to the potential of depreciation of the company's stock price.
Shareholder Rights and Privileges
In addition, shareholders also enjoy certain rights as investors of the company. Some of the most common privileges include:
- Shareholder Meetings and Voting Rights: Owning stock in a company could provide investors with the right to vote on important matters such as electing the Board of Directors, potential mergers and acquisitions, and other issues.
- Dividend Payments: Stockholders receive any dividend or cash distributions a company decides to issue.
- Access to Company Records: Public companies have to disclose their regulatory filings and financials. Shareholders also usually receive an annual report to update them on the company's pertinent information.
- Right to Transfer Ownership: Simply put, shareholders of a stock are allowed to buy and sell their shares on the stock market.
- Share of Proceeds: In the event that a company goes bankrupt, shareholders are entitled to a portion of the proceeds from liquidation once creditors and bondholders have been paid.
Investors also have the right to sue a company if they feel they are a victim of wrongful acts or fraud. Since state laws and regulation for shareholder rights vary, it is important that any investor do their due diligence and have a comprehensive understanding of what they are entitled to as a holder of stock and what the potential risks may be.