What is a shareholder? | Definition, pros, and cons
Tips / 09.12.2021
Imagine a publicly listed company on the stock exchange. Now imagine that this company is divided into hundreds of little pieces which you can own. This is the case even if you don’t run a company.
These “little pieces” are “shares” and the person who owns them is known as a shareholder.
But looking at this explanation, other questions come to mind. These include what are the responsibilities of a shareholder? And what are the advantages and disadvantages of being one?
What’s more, what’s the difference in the similar-sounding word “stakeholder”?
Let’s take a closer look.
Table of Contents
What do shareholders do?
A shareholder must hold a minimum of one share in a company in order to be considered as one. They purchase this share with their own funds.
Shareholders can be individuals, companies, or even other organisations. Although they are not involved in managing the publicly traded business, they can vote in the directors and management and they have certain responsibilities and duties, which may involve:
- They can be involved in the shared ownership over the short-term and can sell their shares at any time; there’s no requirement for a long-term commitment
- They enjoy partial ownership of the company
- They can receive dividends from the company’s profits
- They are exempt from being sued if the company goes under
- They can enjoy voting rights regarding the directors of the company who run it and they choose which powers to grant directors
- They can also take part in appointing and removing directors and setting their salaries
- They may attend shareholders’ meetings
- View corporate records, inspect premises and receive notice of stockholder meetings
- In case of insolvency, they must pass a resolution for voluntary liquidation to wind up the company
- They can also alter the company’s constitution and change the company’s name
Stockholders can’t invest capital in a sole proprietorship or a sole trader business.
Is there a limit to the number of shareholders?
The minimum number of shareholders in a company is one, while there is no upward cap on the maximum number.
What are the pros and cons of being a shareholder?
- They can benefit from the appreciation of capital
- They may receive dividends
- They may have voting rights on certain matters
- Shareholders also have limited liability
- They can face losses
- Not all companies pay out dividends
- They may receive nothing if the company faces bankruptcy
- They have limited rights
Is a shareholder the same as a director?
No, they are not the same. A shareholder owns shares in a company and votes in the directors. However, they are not responsible for the day-to-day running of the company, whereas a director is.
It is also possible for a director to be a shareholder. This is usually the case with smaller companies where the owner and director are usually the same.
Shareholder vs stockholder
Is there a difference between shareholders and stockholders? Actually, the answer is no. This is because whether you hold a share in a company or stock in it – this refers to the same concept of company ownership described above.
Shareholder vs stakeholder
Although these words may sound similar, they have two completely different meanings. A stakeholder in a company can be any person who is affected by it and its activities. This may include employees, government bodies, clients and customers, environmental agencies, and more.
These stakeholders usually have a vested interest in how the company is performing and in its activities to ensure that the company does not cross a legal line. However, a shareholder can also be considered a stakeholder of a company, although not all stakeholders are shareholders.
Now that you know what a shareholder is, what some of their main responsibilities are, and what the pros and cons of being one entail, we hope we’ve given you some business tips into the world of finance, companies, publicly listed companies, and subsequently, their owners.
Disclaimer: Please be aware that the contents of this article and the myPOS Blog in general should not be interpreted as a legal, monetary, tax or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.