Definition
A shareholder, also known as a stockholder, is an individual, company, or institution that owns at least one share of a company’s stock, thereby holding a portion of the company’s ownership. As a result, shareholders stand to gain if the company performs well and may receive dividends or capital gains. They also have the right to vote on corporate decisions such as electing the board of directors or changes to corporate policies.
Phonetic
The phonetic spelling of “Shareholder” is: /ˈʃeərˌhoʊldər/
Key Takeaways
- Key Players in the Business: Shareholders are the owners of a corporation. They have a significant role in a company’s operations and influence financial decisions. In addition, shareholders are often consulted for approval on major business decisions.
- Rights and Benefits: Shareholders can receive a portion of the company’s profits in the form of dividends. They have the right to vote on important company matters, including the election of board members. Shareholders also have the right to inspect the company’s books and records.
- Risk of Investment: Shareholders hold financial risk as their investment in a company is not guaranteed. The value of shares can fluctuate, creating potential for both profits and losses. However, potential losses for shareholders are typically limited to their initial investment.
Importance
A shareholder is crucial in business/finance because they are essentially the owners of a corporation, holding a claim on a part of the company’s assets and earnings. The importance of a shareholder lies not only in the capital they bring in, which aids the company’s expansion and financial stability, but also in their ability to influence strategic decisions through voting rights. The distribution of profits to shareholders, in the form of dividends, often reflects the health of a company, making them crucial players in the overall market dynamics. Moreover, shareholders bear the financial risk of the business, underscoring their relevance in the corporate world.
Explanation
A shareholder, also known as a stockholder, represents an individual, institution or corporation that legally owns one or more shares in a company. The primary purpose of a shareholder is to invest in a company with the expectation of financial returns. Shareholders serve as the lifeblood of a corporation, providing the capital necessary to fund operations, drive growth, and innovate. They take on the risk of potentially losing their investment if the company doesn’t perform well, but they also stand to benefit if the company is successful — making their role a critical one in the world of business.Shares constitute a claim on part of the company’s assets and earnings, which implies that as shareholders, they have a financial commitment towards the company. Investors become shareholders and provide necessary capital to a company in exchange for an ownership stake in the business, with the hopes that the company makes profitable strategic decisions that will drive the stock price up. In some cases, shareholders may earn dividends, which are a portion of a company’s earnings distributed to stockholders. Moreover, shareholders also exercise influence over the company’s management decisions through voting rights, making their role invaluable to shaping the future direction of the company.
Examples
1. Berkshire Hathaway: This huge conglomerate, run by the famous investment guru Warren Buffett, is perhaps one of the most widely known examples of a corporation that has shareholders. Shareholders invest in Berkshire Hathaway stock expecting the corporation to generate profits, and in turn, increase share price and pay dividends. Berkshire Hathaway has a unique approach to dividends; instead of issuing them regularly, the firm often reinvests profits, leading to an increase in stock prices.2. Apple Inc: Apple, being one of the largest companies globally, has millions of shareholders who own stakes in the company through its publicly traded stocks. Shareholders profit when Apple’s profits increase, making the company’s stock price go up. Furthermore, Apple also periodically pays out dividends from its profits to the shareholders.3. Small Local Business: Even small, privately held companies can have shareholders. For instance, a family-owned restaurant may decide to issue shares to more family members or even outside investors to raise capital for expansion. In this instance, the shareholders will own a portion of the business and will expect a return either via a share of profits, appreciation in their share value, or both.
Frequently Asked Questions(FAQ)
Who is a shareholder?
A shareholder is any individual, company, or institution that owns at least one share of a company’s stock.
What are the rights of a shareholder?
Shareholders generally have the right to vote on key corporate decisions, receive dividends, participate in the company’s profitability, and receive assets upon liquidation, among others.
What is the difference between a shareholder and a stakeholder?
A shareholder owns part of a public company through shares, while a stakeholder is interested in the company’s performance for reasons other than just stock performance. Stakeholders could include employees, customers, suppliers, and even the community.
Do all shareholders have the same voting rights?
Not always. Some companies issue different classes of stock, each with its own voting rights. For example, some stocks may offer ‘one vote per share,’ while others offer ‘ten votes per share,’ or no voting rights at all.
What is a minority shareholder?
A minority shareholder is a shareholder who owns less than 50% of a company’s total shares and therefore does not have control over the company.
What is meant by shareholder value?
Shareholder value is a business term that implies that the ultimate measure of a company’s success is to increase the wealth of its shareholders. It’s assessed by looking at the increase in a company’s share price over time and dividends paid.
How can I become a shareholder?
You can become a shareholder by buying shares of a company’s stock. This typically occurs through a stock exchange and requires a brokerage account.
What are dividends?
Dividends are a distribution of a portion of a company’s earnings that are decided by the board of directors, to a class of its shareholders.
What is a shareholders’ agreement?
A shareholders’ agreement is a contract entered into by the shareholders of a company to define their rights, responsibilities, and obligations, as well as the company’s operational aspects.
What is the role of a shareholder in a company’s management?
While shareholders own a part of the company, they do not manage the day to-day operations of the business. However, they can influence the company’s policies and strategic decisions through their voting rights.
Related Finance Terms
- Equity
- Dividends
- Stock Certificate
- Shareholder’s Equity
- Shareholder’s Agreement
Sources for More Information
