A shareholder, also referred to as a stockholder, is a person, company, or institution that owns at least one share of a company’s stock, which is known as equity. Because shareholders are essentially owners in a company, they reap the benefits of a business’ success. These rewards come in the form of increased stock valuations, or as financial profits distributed as dividends. Conversely, when a company loses money, the share price invariably drops, which can cause shareholders to lose money, or suffer declines in their portfolios’ values.
[Important: While shareholder are entitled to collect proceeds that are left-over after a company liquidates its assets, creditors, bondholders, and preferred stockholders have precedence over common stockholders, who may be left with nothing.]
The Basics of Shareholders
A single shareholder who owns and controls more than 50% of a company's outstanding shares is known as a majority shareholder, while those who hold less than 50% of a company’s stock are classified as minority shareholders.
In many cases, majority shareholders are company founders. In older companies, majority shareholders are frequently descendants of a company founders. In either case, by controlling more than half of a company’s voting interest, majority shareholders wield considerable power to influence key operational decisions, including the replacement of board members, and C-level executives like chief executive officers (CEOs) and other senior personnel. For this reason, companies often attempt to avoid having majority shareholders amongst their ranks. Furthermore, unlike the owners of sole proprietorships or partnerships, corporate shareholders are not personally liable for the company's debts and other financial obligations. Therefore, if a company becomes insolvent, its creditors cannot target a shareholder’s personal assets.
- A shareholder, also referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock.
- As equity owners, shareholders are subject to capital gains (or losses) and/or dividend payments as residual claimants on a firm's profits.
- Shareholders also enjoy certain rights such as voting at shareholder meetings to approve things like board of directors members, dividend distributions, or mergers.