Article

Shareholders
June 07 , 2012

Shareholders or stockholders own parts or shares of companies. In large corporations, shareholders are people and institutions that simply invest money for future dividends and for the potential increased value of their shares, whereas in small companies they may be the people who established the business or who have a more personal stake in it. When investors buy shares of companies, they receive certificates that say how many shares they own. 

Owning shares of a company often entitles an investor to a part of the company's profits, which is issued as a dividend. In addition, shareholders are typically offered a fixed payout per share if the company is bought out. Because they are partial owners of a company, shareholders are allowed to vote at shareholder meetings for certain company actions (such as approving or rejecting a merger proposal), review company accounts, and receive periodic reports on company performance. 

If shareholders cannot attend annual meetings, they are permitted to vote by proxy by mailing in their vote. Furthermore, if a company decides to issue more shares, current shareholders have the option to buy shares before they are offered to the public.

Shareholders may own two kinds of stock: common stock and preferred stock. Owners of common stock have the last claim to company profits and assets and they may receive dividends at the discretion of a company's board of directors. In addition, common stock does not have a fixed value. Holders of common stock, therefore, profit when a company performs well and suffer losses when a company does not perform well.

Owners of preferred stock have first claim to a company's profits and assets. Investors may own three different kinds of preferred stock:

(1) stock with preferred dividends that entitles them to a fixed dividend rate,

(2) stock with preferred assets that allow them to receive to the first cut of the money from a company's sale, and

(3) stock with both preferred dividends and preferred assets.

Shareholders also may own redeemable and convertible stock. Redeemable stock allows a company to repurchase it at some point, whereas convertible stock enables stockholders to exchange preferred stock for common stock.

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