Being a shareholder sounds like a really complicated term that makes you wield power and control in a company.
The reality is, it’s not exactly like the movies or TV. While being a shareholder does have some perks, depending on some factors you’ll read later on, it’s not as confusing as it is made out to be.
Becoming a shareholder is also incredibly simple, which surprises a lot of people as well. The term will make more sense, but it’s good to grasp the idea of what being a shareholder means in the different ways it applies. If you’ve ever been curious about what being a shareholder entails, here is what you need to know.
Who Is a Shareholder?
In essence, anyone who buys shares (stock) of a company becomes a shareholder. It doesn’t matter if you own 1 share of IBM or 1000 shares, you’re a shareholder nonetheless. Companies and organizations can also be shareholders, and often are, by purchasing large amounts of shares of another company. It’s also important that people understand how protecting your shareholdings can be done by anyone, even if you are not a major shareholder. This is done through legal means by way of lawyers. Still, the bare minimum is one share or parts of a share in a mutual fund, so you may be a shareholder already.
Where Do You Buy Shares?
It all depends on where you live/what resources you have access to. Many people can open up trading or investment accounts through their banks. This is a common way to do it because your bank already has a direct line of funding to your investing account, as well as financial consultants to help you with your money. You can also use independent investment apps from public companies or other third-party groups. Shares can be bought through desktop websites or on mobile apps too.
What Are Shareholder Rights?
Another thing that’s very important is your shareholder rights. Not all shares are the same, but here are some rights that may apply to you:
- Sell shares to buyers
- Vote on company actions
- Vote on company board of directors
- Purchase newly issued shares
- Received dividends
- Sue in the case of fiduciary violations
- Attend company general meeting
- Receive a return in the instance of bankruptcy in proportion to your ownership stake
These are important to remember because as a shareholder, you do have some decision making ability, and rights. This changes depending on the type of shares you own but is a general concept to keep in mind. It’s important that as a shareholder, you know your power.
Are There Different Types of Shareholders and Shares?
As briefly touched on in the last section, yes, there are different types of shares and shareholders. The types of shareholders and shares are common shareholders/shares, which is likely what kind you would be. These are the type that own shares, receive dividends, and have voting rights like in general shareholder events. The second is preferred shareholders/shares who do not get voting rights but receive dividends before common shareholders and earn the return at a fixed annual rate.
What Are Their Roles?
Voting rights are the biggest thing that makes a shareholder (common shares) important because they have power in decision making for a company because they own part of it. Similarly, it’s good to know that a common shareholder can participate in class action lawsuits in the instance of fraud or other misleading information that negatively impacts the value of the stake in a company or the dividends they receive. This is the primary role that shareholders play.
What Are Some Common Misconceptions About Shareholders?
The most common misconceptions are that shareholders and directors are the same things. You are not a director or on the board of directors for owning shares, even though you have some voting rights in decisions of the company. You are part of a larger group, but a director can own shares in their own company. Secondly, shareholders are not stakeholders, as stakeholders do not own shares of a company, but rather they have an investment in the company, money or otherwise. A government would be considered a stakeholder because of taxes that the company must pay to them.
The words shares, stocks, and shareholder get thrown around a lot, but it’s all meaningless unless you know what it equates to. Now that you understand the basics of being a shareholder, you can start to understand the importance a little better.