Shareholder

Definition

A shareholder, also known as a stockholder, is an individual or entity that owns shares of a company's stock, representing a fractional ownership interest in the business. Shareholders have certain rights and responsibilities based on their ownership stake in the organization.

5 Must Know Facts For Your Next Test

1. Shareholders have the right to vote on important company decisions, such as the election of the board of directors and major corporate actions.
2. Shareholders are entitled to receive a portion of the company's profits in the form of dividends, based on the number of shares they own.
3. Shareholders can sell their shares on the open market, allowing them to potentially profit from the appreciation of the company's stock price.
4. Shareholders have limited liability, meaning they are not personally responsible for the company's debts or obligations beyond the value of their investment.
5. The more shares a shareholder owns, the greater their voting power and potential to influence the company's decision-making.

Review Questions

• Explain the role of shareholders in the governance of a company.
  • Shareholders play a crucial role in the governance of a company. They have the right to vote on important decisions, such as the election of the board of directors and major corporate actions. The more shares a shareholder owns, the greater their voting power and influence over the company's decision-making. Shareholders can also hold the management accountable by exercising their voting rights and voicing their concerns at shareholder meetings.
• Describe the financial benefits that shareholders can receive from their ownership in a company.
  • Shareholders can receive financial benefits from their ownership in a company in the form of dividends and potential appreciation of the company's stock price. Dividends are a distribution of a portion of the company's earnings, paid out to shareholders at regular intervals. Additionally, if the company's stock price increases, shareholders can sell their shares on the open market and potentially profit from the appreciation of their investment. The amount of financial benefits a shareholder receives is directly proportional to the number of shares they own.
• Analyze the impact of shareholder rights and responsibilities on the overall management and decision-making of a company.
  • Shareholder rights and responsibilities have a significant impact on the overall management and decision-making of a company. Shareholders have the power to vote on important corporate decisions, which can influence the direction and strategic priorities of the business. This accountability helps ensure that the company's management acts in the best interests of the shareholders. At the same time, shareholders also have a responsibility to stay informed about the company's performance and to actively participate in the decision-making process, either by voting directly or by authorizing a proxy to vote on their behalf. The balance between shareholder rights and responsibilities is crucial in maintaining a well-governed and accountable company.

Related terms

Equity:

Equity represents the ownership interest in a company, which is divided into shares that can be owned by shareholders.

Dividend: A dividend is a distribution of a portion of a company's earnings, decided and paid out to shareholders at regular intervals.

Proxy Voting: Proxy voting is the process by which a shareholder authorizes someone else to vote on their behalf at a company's shareholder meeting.