Shareholder

A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or
legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the
corporation as the legal owner of shares of the share capital of a public or private corporation. Shareholders
may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a
corporation when their name and other details are entered in the corporation's register of shareholders or
members,[1] and unless required by law the corporation is not required or permitted to enquire as to the
beneficial ownership of the shares. A corporation generally cannot own shares of itself.[2]

The influence of a shareholder on the business is determined by the shareholding percentage owned.
Shareholders of a corporation are legally separate from the corporation itself. They are generally not liable
for the corporation's debts, and the shareholders' liability for company debts is said to be limited to the
unpaid share price unless a shareholder has offered guarantees. The corporation is not required to record the
beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one
person is on the record as owners of a shareholding, the first one on the record is taken to control the
shareholding, and all correspondence and communication by the company will be with that person.

Shareholders may have acquired their shares in the primary market by subscribing to the IPOs and thus
provided capital to the corporation. However, most shareholders acquire shares in the secondary market and
provided no capital directly to the corporation. Shareholders may be granted special privileges depending
on a share class. The board of directors of a corporation generally governs a corporation for the benefit of
shareholders.

Shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a
direct or indirect interest in the business entity. For example, employees, suppliers, customers, the
community, etc., are typically considered stakeholders because they contribute value or are impacted by the
corporation.

Contents
Types
Ordinary shareholders
Preference shareholders
Rights
See also
References

Types
A beneficial shareholder is the person or legal entity that has the economic benefit of ownership of the
shares, while a nominee shareholder is the person or entity that is on the corporation's register of members
as the owner while being in reality that person acts for the benefit or at the direction of the beneficial owner,
whether disclosed or not.
Primarily, there are two types of shareholders.

Ordinary shareholders

An individual or legal entity that owns ordinary shares of a company (in the United States commonly
referred as common stock) is usually referred to as an ordinary shareholder. This type of shareholding is the
most common. Ordinary shareholders have the right to influence decisions concerning the company by
participating at general meetings of the company and in the election of directors and can file class action
lawsuits, when warranted.[3]

Preference shareholders

Preference shareholders are owners of preference shares (in the United States commonly referred as
preferred stock). They are paid a fixed rate of dividend, which is paid in priority to the dividend to be paid
to the ordinary shareholders. Preference shareholders usually do not have voting rights in the company.[4]

Rights
Subject to the applicable laws, the rules of the corporation and any shareholders' agreement, shareholders
may have the right:

To sell their shares.[5]

To vote on the directors nominated by the board of directors.[5]
To nominate directors (although this is very difficult in practice because of minority
protections) and propose shareholder resolutions.[5]
To vote on mergers and changes to the corporate charter.[5]
To dividends if they are declared.[5]
To access certain information; for publicly traded companies, this information is normally
publicly available.[5]
To sue the company for violation of fiduciary duty.[5]
To purchase new shares issued by the company.
To vote on & file shareholder resolutions.
To vote on management proposals.
To what assets remain after a liquidation.

The above-mentioned rights can be generally classified into (1) cash-flow rights and (2) voting rights.
While the value of shares is mainly driven by the cash-flow rights that they carry ("cash is king"), voting
rights can also be valuable. The value of shareholders' cash-flow rights can be computed by discounting
future free cash flows. The value of shareholders' voting rights can be computed by four methods:

The difference between voting shares and non-voting shares (dual-class approach).[6]
The difference between the price paid in a block-trade transaction and the subsequent price
paid in a smaller transaction on exchanges (block-trade approach).[7]
The implied voting value obtained from option prices.[8]
The excess lending fee over voting events.[9]
See also
Beneficial ownership
Business valuation
Class action
Class A share
Class B share
Corporate governance
Employee stock ownership
Investor
Real party in interest
Shareholder value
Social ownership
Street name securities

References
1. Fontinelle, Amy (26 November 2003). "Shareholder" (http://www.investopedia.com/terms/s/s
hareholder.asp). investopedia.com.
2. "Company shareholders" (https://asic.gov.au/for-business/running-a-company/company-shar
eholders/).
3. "Shareholder - Definition, Roles, and Types of Shareholders" (https://corporatefinanceinstitut
e.com/resources/knowledge/finance/shareholder/). Corporate Finance Institute. Retrieved
2019-02-19.
4. Wright, Tiffany C. "Common Vs. Preferred Stock for Financing a Private Company" (https://y
ourbusiness.azcentral.com/common-vs-preferred-stock-financing-private-company-12885.ht
ml). azcentral.com. USA Today. Retrieved 23 June 2021.
5. Velasco, Julian (2006). "The Fundamental Rights of the Shareholder" (https://lawreview.law.
ucdavis.edu/issues/40/2/articles/davisvol40no2_velasco.pdf) (PDF). UC Davis L. Rev. 40:
407–467. Retrieved 16 April 2018.
6. Zingales, Luigi (1994). "The value of the voting right: a study of the Milan stock exchange
experience". Review of Financial Studies. 7: 125–148. doi:10.1093/rfs/7.1.125 (https://doi.or
g/10.1093%2Frfs%2F7.1.125).
7. Dyck, A.; Zingales, L. (2004). "Private benefits of control: an international comparison" (http
s://www.nber.org/papers/w8711). Journal of Finance. 59: 537–600. doi:10.3386/w8711 (http
s://doi.org/10.3386%2Fw8711).
8. Kind, Axel; Poltera, Marco (2013). "The value of corporate voting rights embedded in option
prices". Journal of Corporate Finance. 22: 16–34. doi:10.1016/j.jcorpfin.2013.03.004 (https://
doi.org/10.1016%2Fj.jcorpfin.2013.03.004).
9. Christoffersen, Susan; Geczy, Christopher; Musto, David; Reed, Adam (2007). "Vote Trading
and Information Aggregation" (https://repository.upenn.edu/cgi/viewcontent.cgi?article=1132
&context=fnce_papers). The Journal of Finance. 62 (6): 2897–2929. doi:10.1111/j.1540-
6261.2007.01296.x (https://doi.org/10.1111%2Fj.1540-6261.2007.01296.x).

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