What is a shareholder? – Our guide

A person, a company, or even an organisation that holds stock(s) in a business is known as a shareholder.

They must own at least one share in a company’s stock or mutual fund to make them a partial owner. If the business in question finds success and performs well, they normally receive declared dividends.

They can also be referred to as stockholders or stakeholders, and have the right to vote on certain matters surrounding the company they are invested in.

If investors wish to pursue it, they can attempt to become elected members of the board of directors.

In the event of liquidation, when assets begin to be sold, shareholders may gain a portion of the cash, as long as the creditors have already been paid.

At the point when such a circumstance emerges, the benefit of being a shareholder lies in the way that they are not obliged to bear the company debts and financial commitments brought about by the business, which implies creditors can’t force stockholders to pay them.

The roles of a shareholder

You should be aware that acting as a shareholder in business does not solely mean you are on the receiving end of profits, as there are many other responsibilities included. The following are examples of shareholder responsibilities:

• Checking financial statements of the business
• Making decisions that are key to the company, such as deciding on changes to the business’ constitution
• Deciding on how much directors should receive as their salary, and other similar tricky endeavours
• Choosing what powers the company directors will have, including either appointing or removing them from office when needed

Different types of shareholders 

There are two main types of shareholders that you should be aware of: the common shareholder and the preferred shareholder.

Common shareholders are those that own a business’ common stock. They are the more predominant sort of shareholders and reserve the privilege to decide on issues concerning the organisation.

As they have command over how the company is overseen, they are able to document a legal claim against the business for any bad behaviour that might possibly hurt the association. Preferred shareholders, however, are far rarer.

In contrast to common investors, they own a portion of the company’s preferred stock and have no democratic privileges, or any say in the manner that the business is overseen.

All things being equal, they are qualified for a decent measure of yearly profit, which they will get before the common shareholders are paid their part.

Even though both common stock and preferred stock see their worth increment with the positive presentation of the organisation, it is the previous that encounters higher capital additions or misfortunes.

How many shares can they hold?

You may be wondering if there is a limit to the amount of shares an investor can hold at any one time. The answer in most cases will be as many as you’d like to purchase or can afford to buy.

If you are checking the stock market from day to day and see shares in a company you wish to invest in going for a decent price, you are usually able to purchase multiple shares at once, even thousands at a time in some cases.

How many shares can a company issue?

The minimum quantity of shares that a company can issue is one. This is normally the case when someone is setting up a limited company as the sole owner and director.

The Companies Act 2006 does not provide any form of limit, meaning you are able to issue as many shares as you wish, either during or after the incorporation process.

Can shareholders be directors?

The short and simple answer is yes, even though the two are separate entities.

As previously mentioned, the shareholder is a part-owner of the business venture and is therefore entitled to benefits as the likes of receiving profits and exercising control over the management of the company itself.

Whereas directors are people hired by shareholders to perform tasks that are related to the organisation’s daily operations, with the ultimate goal of improving its status.

The only time shareholders cannot be directors is if the individual is bankrupt or disqualified from acting as a director. However a banned director can be a shareholder.

Shareholder vs stakeholder

Shareholders and stakeholders are frequently confused for one another, with many individuals believing that they are very much the same. Notwithstanding, the two terms don’t mean exactly the same thing. An investor is a proprietor of a business as controlled by the quantity of offers they own.

A stakeholder doesn’t own a portion of the business, however, has some interest in the performance of an organisation very much like the investors. Although, their interest might possibly include cash.

Shareholder vs subscriber 

Before a business becomes public, it begins first as a private limited company that is run, shaped, and coordinated by a gathering of individuals called subscribers. These are viewed as the principal individuals from the company whose names are recorded in the memorandum of association.

When the business opens to the public, their names continue to be written in the public register and they stay this way even after their departure from the organisation.

Read more: What are preference shares

Conclusion

A shareholder is an individual or entity that owns shares in a company. Shareholders have a financial stake in the company and are entitled to a portion of the company’s profits, as well as the right to vote on certain matters such as the election of directors and major corporate actions.

As owners of the company, shareholders also have the ability to influence the direction and decisions of the company through their voting rights. Overall, shareholders play a significant role in the governance and success of a company, as they have a vested interest in ensuring that the company performs well financially.