Investing has a language all its own, from terms relating to a company's finances to words for different investing methods. "What is a shareholder?" is a question that comes up often. Simply put, it's just one of many terms for people who put their money into a company. Let's explore what that really means.
Shareholder defined
What is a shareholder?
A shareholder is someone who holds shares in a company; that's pretty simple. This person could be anyone with a brokerage account where they can hold shares of a company. They don't have to hold a lot of stock to be considered a shareholder, either -- even a single share will do.
Depending on the company, one share may represent anywhere from one out of a billion shares to something much more substantial, like a stock from a company offering just a few thousand shares.
Shareholder rights
Shareholder rights
As a shareholder in a publicly traded company, you have certain rights. After all, you are part owner, even if your part is very small. A few of these rights may include:
- Inspecting the company's financial records
- Voting on important decisions, like naming board directors and deciding whether a merger should happen
- Attending annual meetings, either in person or via conference call
- Receiving dividends, if your company pays them
- Claiming a portion of the proceeds if your company liquidates its assets
You also generally have the right to buy more shares of the stock or sell all your shares back to the open market. Your specific rights will be determined by the class of stock you've purchased. Different classes of shares often have different rights, such as voting privileges.
Majority vs. minority shareholder
Majority shareholder versus minority shareholder
There are two types of shareholders: majority and minority. Most of us are minority shareholders, meaning we each own less than 51% of the shares in a company. People who buy shares through their stockbroker or via different online trading platforms are almost always minority shareholders.
Majority shareholders own the majority of a company's shares -- with more voting power than the rest of the owners combined -- known as control stock. The control stock is often held by the company's original owners or their descendants unless the company has been acquired or otherwise sold. This allows the majority shareholders to retain the final say in important decisions about the company.
Preferred vs. common stock
Preferred versus common stock
Another thing to consider as a shareholder is whether you hold preferred or common stocks. When people talk about buying stocks on the stock market, they're usually referring to common shares. These are the company's most common shares and the easiest for regular investors to buy.
Preferred stock often offers higher dividends and asset distribution than common stock but usually has no voting rights. However, it offers tax advantages for institutional investors and allows them to invest in companies before an initial public offering (IPO) is launched that offers common stock.
Values tend not to fluctuate as much, making it attractive to institutional investors. Preferred stock can also sometimes be converted to common stock.
Related investing topics
Common stock offers voting rights and a great deal more potential to see massive gains over the longer term. That makes it very attractive for regular investors.
Unlike preferred stock, which tends not to appreciate as much, common stock often sees much higher appreciation over time, even though they're behind bonds and preferred stock if a company liquidates and distributes whatever assets remain.
