What Is a Shareholder?
Let me tell you directly: a shareholder is a person, company, or institution that owns at least one share of a company’s stock or a mutual fund. As a shareholder, you essentially own part of the company, which gives you the right to share in its profits.
You benefit when the company succeeds through higher stock values or dividends, and you get to vote in corporate elections. But if the company struggles and share prices drop, you can lose money. If the company fails entirely, you can claim remaining assets after debts are paid, though that might not amount to much.
Understanding Shareholders
You need to understand that a shareholder is any entity owning one or more shares in a company’s stock or mutual fund—we often call them stockholders too. Holding shares means you have rights and responsibilities, including voting on issues affecting the company or fund, and sharing in its financial success.
If you own more than 50% of the outstanding shares, you're a majority shareholder with significant control over decisions like replacing board members or executives. Most of these are company founders or their relatives in established firms, but many companies avoid having them to prevent concentrated power.
On the flip side, if you hold less than 50%, you're a minority shareholder. Importantly, as a corporate shareholder, you're not personally liable for the company’s debts—creditors can't come after your personal assets if things go south.
Rights and Responsibilities
Being a shareholder isn't just about potential profits; it comes with specific rights and responsibilities, plus tax considerations. According to a corporation’s charter and bylaws, you traditionally have rights like inspecting the company’s books and records, suing for directors' or officers' misdeeds, and voting on key matters such as board directors, dividend distributions, or mergers.
You're entitled to dividends if the board pays them—not all companies do—and you can attend annual meetings in person or via calls. If you can't attend, vote by proxy through mail or online. In liquidation, you claim a proportionate share of remaining proceeds, but only after creditors, bondholders, and preferred stockholders get theirs, which might leave common stockholders with nothing.
Shareholders and the IRS
Let’s talk taxes: if you're a shareholder, report any gains or losses from selling shares on your personal income tax return—gains add to your taxable income, losses deduct from it. Dividends are also taxable.
Consider S corporations, which are often small to midsize with under 100 shareholders; they pass income and losses directly to you, avoiding double taxation unlike C corporations where profits are taxed at corporate and personal levels. You still face capital gains or losses when selling S corp shares, and the IRS notes S corps handle taxes on built-in gains and passive income at the entity level.
Types of Shareholders
Companies often issue common and preferred stock. You’ll find common stock more common for ordinary investors, offering voting rights, but preferred stock gives priority on dividends—which are fixed even in tough times—though without voting rights.
Some companies split shares into classes, like Class A with more votes (say, 10 per share) versus Class B with one. Majority shareholders own over 50%, often founders, while minority ones hold less, even just one share.
Key Takeaways
- A shareholder is any person, company, or institution owning shares of a company’s stock, even just one.
- You make gains or losses selling shares and may get dividends if the company pays them.
- Rights include voting at meetings on board directors, dividends, or mergers.
- You could lose your entire investment if the company goes bankrupt.
The Bottom Line
In essence, shareholders or stockholders own the corporation. You can receive profits through dividends or by selling shares at a gain, and participate in elections. Anyone can become one by buying stock, and companies might offer employee options as benefits.
Remember, there's risk: common shareholders are last for repayment in bankruptcy, and you might lose everything.
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