The term ‘shareholders‘ is used to denote any individual, institution, or organization that has ownership of at least one share of an organization’s stocks, also referred to as equity. also known as stockholders, such entities are partial proprietors of an organization and are entitled to a share in the profits that the said organization generates. These profits are given to stockholders by the method of dividend distribution, or through an expansion in stock valuation. Similarly, when the share price of a company drops due to losses suffered by it in a given year, shareholders to suffer a loss from their investment. It consequently leads to a decline in their portfolio value.
Rights of Shareholders
Given below is a list of the different rights of Shareholders:
- Command over the organization’s key leadership decisions, like the appointment of board members, approval or dissent on potential mergers, etc
- Receiving dividends.
- Rights to glance through an organization’s records and books.
- Going to Annual General Meetings, either face to face or through conference calls.
- Power to sue an organization, in the event of offenses with respect to its officials or directors.
- Entitlement on the proportionate allocation of proceeds collected in the event of liquidation of a company’s assets.
- In the event that a shareholder can’t go to a meeting, he/she has the right to vote on a company’s critical issues as a substitute, through online platforms or mail-in ballots.
Role of a Shareholder
Let’s look at some of these responsibilities of a Shareholder:
- Conceptualizing and deciding the powers they will give to the company’s directors, including appointing and eliminating them from office
- Deciding on how much the chiefs get for their salary. The practice is very tricky on the grounds that shareholders must ensure that the sum they will give will make up for the costs and average cost for basic items in the city where the director lives, without compromising the company’s offers.
- Settling on choices on instances the directors have no control over, including making changes to the organization’s constitution
- Checking and making approvals of the financial statements of the organization
Types of Shareholders
Common Shareholders
As their name proposes, they are the proprietors of an organization’s common stocks. These people enjoy voting rights over issues concerning the organization. Moreover, they can likewise practice the previously mentioned rights, including filing class-action lawsuits against any issue that can hurt the association.
Preferred Shareholders
Preferred Shareholders are rare. In contrast to common shareholders, they own a share of the organization’s favored stock and have no democratic rights or voting rights in the manner the organization is managed. Instead of this, they are entitled to a fixed measure of annual dividend, which they will get before the common shareholders are paid their part.
The following table illustrates the difference between the two types of shareholders lucidly.
| Parameters | Common Shareholders | Preferred Shareholders |
| Dividend Distribution | Common Shareholders enjoy dividends generated from the profit in business. | Preferred Shareholders enjoy precedence over a common shareholder relating to dividend distribution. |
| Voting Rights | Common Shareholders enjoy voting powers ballot powers regarding the executive decisions of an organization’s operations. | Preferred Shareholders do not enjoy voting rights over issues of the organization. |
| Profitability | Dividend Distribution among normal shareholders is done on the basis of how an organization performs in a specific year. For example, if an organization brings about losses in a given year, common shareholders incur losses as well. Likewise, in the event that it produces higher profits, the shareholders are also entitled to get higher profits. | Preferred stockholders are entitled to receive dividends at a fixed rate, which is not influenced by a company’s performance. |
| Procedure during insolvency | Common Shareholders carry a high liability if an organization declares insolvency, and furthermore have a possibility of losing their whole investment. | During insolvency, preferred shareholders reserve an option to guarantee the companies assets. |
Shareholder vs Stakeholder
Shareholders and Stakeholders are frequently utilized conversely, with numerous individuals believing that they are very much the same. However, the two terms don’t mean anything very similar. A shareholder is a proprietor of an organization as controlled by the number of offers they own. A stakeholder doesn’t own a piece of the organization however has some interest in the exhibition of an organization simply like the shareholders. However, their interest may or may not involve money.
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