Each of us has heard the word "shareholder" at least once, but have you ever wondered who these people really are and what role they play in the business world? They are not just shareholders, they are an important part of the mechanism that drives companies forward. They influence key decisions, support business development with their investments and receive rewards for the company's success. In this article, we will look at who shareholders are, what their rights and responsibilities are, and also consider the types and characteristics of this role. If you want to better understand how the modern economy works, you have come to the right place.
Who is a shareholder?
A shareholder is an owner of shares that constitute part of the capital of a joint-stock company or mixed company. However, by owning shares, shareholders are exposed to the risk that the value of their shares (Stock) may fall (loss) or rise (profit).
Types of shareholders
Like everything else, there are different types of shareholders. They can be classified by the type of capital invested, the degree of participation in the company's decision-making, and the length of time they have held the shares.
- Institutional: Legal entities (organizations/companies). This type contributes more capital to the company.
- Individual: individuals who own a certain number of shares and participate to a certain extent in the capital. Most decisions are made in favor of the main participants in the capital.
- Minority: those who own a small stake and therefore have little influence on decisions.
- Principal (main): own a significant share of the capital and therefore have greater influence on making important decisions in the organization.
- With voting rights: provides the opportunity to directly participate in making management decisions.
- Non-voting: cannot directly participate in the organization's decision-making.
Shareholder Rights (SHR)
In accordance with the conditions established by law, and except for cases provided for therein, a shareholder has the right:
- To participate in the distribution of the company's profits and assets remaining as a result of its liquidation.
- To attend general meetings, vote and appeal corporate decisions.
- For information.
These SHRs can be divided into two main groups: political or related to the management of the organization, and economic, which allow the shareholder to participate in profits, mainly through dividends. However, they are not absolute and can be modulated by the statute, the specific type of shares or stakes, etc.
Political SHR
They guarantee participation in the governance of society, and include:
- Attend, vote and speak at meetings: may be limited, or some types of Stock may be explicitly excluded (in exchange for preferential economic treatment, so-called non-voting shares).
- For information: this is a logical prerequisite to the above, since for its implementation, shareholders must be informed about the company's activities. They must have access to the annual report, the management report and, in general, to any document approved by the general meeting.
- Appeal decisions: challenge them in court, made by the meeting, which violate the law or the statute, or harm the company. Thus, protect yourself and the company.
- To a corporate liability lawsuit: beyond decisions made at meetings, to oversee day-to-day management when managers are believed to be harming the interests of the business.
- To convene a meeting: holders of 5% can demand this from the directors, and if they are refused, they can go to court.
Economical SHR
They allow for participation in profit sharing, and include, among others, the following SHRs:
- On dividend: on profit distributed by a company among its shareholders, a dividend determined by the contributed capital.
- For subscription: participation in a capital increase or convertible bond issue to prevent dilution of Stock. It has economic value and the ability to be transferred by shareholders.
- For the transfer of Stock/shares: allows you to dispose of your shares/shares, which is very common in LLCs and many joint-stock companies to prevent the entry of unwanted investors.
- For a share upon liquidation: for your proportional share upon liquidation.
- For proportional representation on the Board of Directors, in the case of public companies.
- Exit: in certain cases (change of corporate purpose, transfer of legal address abroad, conversion into a limited or general partnership and, note, the absence of profit distribution for more than 5 years in companies not listed on the stock exchange), those who did not approve these solutions can demand payment of the value of the Stock by leaving the company.
For both types, the shareholder is an entity whose sole function is to make contributions to obtain a return on invested funds.
Shareholder Duties (SHD)
The main obligation of a shareholder is to make a contribution. If he fails to fulfill this obligation, the company can force him to do so in court. The law provides that a shareholder is liable for losses caused by the abuse of his voting rights (there is no obligation to vote, but if a vote is cast, it must be in the interests of the company).
Special rights of shareholders depending on the type of shares
1. Common Stock (CS): the opportunity to express your opinion and participate in management. But there are also limitations: CS does not guarantee a stable income. This is the type of risk associated with the inability to participate in strategic decisions.
2. Preferred Stock (PS): Less voting power, more benefits. PS are like VIPs: less influence over events, but they receive a steady income in the form of fixed dividends. Even when the company is in trouble, preferred stock dividends are paid first. Also, if the company decides to go out of business, PS holders have priority in the distribution of assets. They receive dividends first, but their amount is usually fixed. Trade-off: less risk, but limited opportunity to earn more.
How shareholders can influence the management of a company
They are not on stage, but they are the directors who set the direction for the entire show. Although they are not always in the spotlight, their influence shapes the future of the company.
1. The right to vote: the main lever of influence
This is the exercise of a vote at meetings, often called “annual meetings,” where the most important issues are decided: from electing the board of directors to approving development strategies. It depends on the amount of Stock they own. Some feel like part of a large community, owning only one share, while others control the entire package and actually decide its fate.
2. Board of Directors Elections: The Most Important Impact
The board of directors is the brains responsible for developing strategy and executing plans. Shareholders decide who will be responsible for management.
3. Decision approval: control and trust
Consider and approve important decisions proposed by management. For example, approve or reject decisions for major financial transactions, mergers, and asset sales.
4. Dividends: Incentives and Impact
Another form of leverage is the dividend provision. Stockholders are able to demand the payment of dividends. This process requires a balance: it is necessary to take into account the interests of the company, and not to forget about the expectations of investors.
5. Shareholders' Association: The Power of Unity
Owners of a small amount of Stock, joining forces, form a coalition and act as a united front, influencing key decisions.
Conclusion
Shareholders are not just people holding shares, they are key figures in the modern business structure. From small investors seeking to raise capital to large shareholders who determine the strategic direction of the company, everyone plays an important role.
Understanding the types, classifications, and SHRs will help you better navigate the complex world of corporate governance. Regardless of your motivation for investing—financial gain, business control, or long-term prospects—there is an opportunity to influence a company’s activities, from voting to dividend participation.
But with rights always come responsibilities. You must adhere to business ethics, protect the interests of the company and be responsible for your decisions. Contribution is a balance between freedom of influence and the common goal of success. As a result, shareholders are the driving force behind the development of the company, and therefore the entire economy. Their decisions and actions determine the future of the company, turning a simple contribution into an important mission.
