Shareholder definition
/What is a Shareholder?
A shareholder is an individual or entity that owns the shares of a corporation. Share ownership entitles a shareholder to certain rights, which usually include voting for the board of directors, receiving dividends from the firm, and receiving its annual financial statements. There may be only a small number of shareholders (as is common with a privately-held business), or there may be thousands, as is common for a publicly-held company whose shares trade on a major stock exchange.
Shareholders buy shares in a business with the intent of earning a profit either from dividend payments made by the company, or through an appreciation in the market price of the shares. They may also buy shares in order to gain control over a business.
Majority and Minority Shareholders
A shareholder who controls more than 50% of the shares of a corporation is considered to be its majority shareholder, while all others are classified as minority shareholders. Majority shareholders can control who sits on a corporation’s board of directors, which gives them control over the operations of the business. Minority shareholders do not have operational control.
Shareholder Residual Rights
In the event of the liquidation or sale of a business, shareholders have residual rights to any remaining assets. This means that all creditors are paid from the assets or proceeds of the business first, after which remaining funds (if any) are distributed to the shareholders based their relative proportions of ownership of the business. If there are no residual assets remaining after creditors have been paid, then the shareholders will have lost their investment in the business. Conceptually, shareholders have the greatest risk of loss of any stakeholders in a business, but can also profit the most handsomely from an increase in the value of the business.
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The Difference Between Common and Preferred Shareholders
There tend to be far more common shareholders than preferred ones, because companies usually issue far more of this share type than preferred shares; some may issue no preferred shares at all. Another difference is that common shareholders have significantly more voting rights than preferred shareholders. Yet another difference is that common shareholders may not receive any dividends, while preferred shareholders are usually guaranteed a fixed dividend amount per share.
Terms Similar to Shareholder
A shareholder is also known as a stockholder.