LeoGlossary: Shareholder
This is also known as a stockholder.
An individual, company or institution that holds stock in a firm. In a publicly-traded company, each shareholder that purchases a stock in that company becomes its part-owner. Consequently, shareholders earn dividends and voting rights based upon their level of investment.
The term usually refers to public stock, which applies to corporations that went through an initial public offering (IPO). It can also apply to private stock ownership where a company issue stock to its owners without being publicly traded.
Shareholders are a part of the overall stakeholders in a company which can include employees, customers, local community, and society at large.
Types of Shareholders
- Ordinary
An individual or company that owns ordinary shares, referred to as common stock. Ordinary shareholders are able to influence the direction of the company by voting on board members and other topics that come up at general meetings.
Ordinary shareholders enjoy the gains through price appreciation and dividends (if payment is made).
- Preferred
Preferred shareholders typically do not have voting rights. They own preferred stock and are paid a return that has priority over dividends. The stock is paid a fixed rate of return.
Rights
Being a shareholder comes with certain rights, many tied to voting.
- vote on management proposals
- sue for violation of fiduciary duty
- earn dividends (if distributed)
- purchase new shares issued by company
- vote on directors nominated by the Board of Directors
- vote on mergers
- sell shares
- value of remaining assets if liquidation takes place
Majority Shareholder
Any individual or entity that owner more than 50% of the circulating supply of the stock is considered a major shareholder. This is one who can make all decisions since the rest of the shareholders total will not counter the vote of these shares.
The majority shareholders is mostly the founder of a company. As the years progress and growth rate accelerates, there might be reason for dilution. An entrepreneur might bring in others for specialized talent and offer stock as a part of the compensation.
Selling a portion of this business in this matter is also a way that a founder can cash out. Here the owner gets some money in return for giving up some piece of the asset.
It is also a way to raise funds such as when getting involved with venture capital firms.. These firms will provide seed capital in exchange for an equity stake in the company. The ultimate goal is usually to go public at which point the VC firm is cashed out.
