A shareholder is a person who buys or receives, in exchange for material or intellectual resources, securities of the issuing company. For the development of a private enterprise, capital of several types is often attracted. Contributions can be financial, in the form of personnel and equipment. In addition, diversification of risks (minimization) is a completely logical explanation why an entrepreneur wants to share industrial responsibility with other partners. In order for several people to become co-owners of the company, the capital is converted into shares. This usually happens during a period of sustainable economic growth of the enterprise, when the founders raise new funds for business development.
Who is it
In economic terms, a shareholder is a person who has invested capital or other property in a particular enterprise.
He is the owner (holder) of the security and, in fact, the share of the company, which gives him prerogatives in the implementation of commercial activities.
There are three types of privileges:
- political – the right to vote at the general meeting and receive in-depth financial information;
- material – the right to receive dividends;
- active – the right to sell or pledge shares.
Shareholder status in relation to the company is sometimes closer to position investorthan the founder (owner). He owns the shares of the company, which represent a share of the authorized capital – investment in its pure form. Therefore, a shareholder is a co-owner, with all the ensuing rights and obligations, including financial risks.
The latter are offset by dividends paid periodically by the issuing company to each shareholder. The main part of the profit comes from the exchange rate difference in the value of securities on the stock market.
A shareholder can belong to one of the groups:
- Minority (English “mainer” – minor). Minority shareholders hold an insignificant part of the total block of shares. They cannot influence the policy and activities of the company, but they take part in meetings, voting and attend the announcement of the financial result (if desired).
- Majority (English “maiger” – main). A legal or natural person who owns a predominant number of shares or a controlling stake. Has the right to participate in the management of JSC (joint stock company). Often this is the founder of the company or the direct heir to the owner.
Also, shareholders are:
- The only ones – one person owns the shares (100% stake).
- Retail – owns a small number of shares, which give the right to participate in meetings and receive dividends.
The shareholder also differs in the type of shares:
- Privileged – the ability to receive a strictly fixed income, but significantly limit the rights of a shareholder, in particular, in the management of the company. As a rule, separate groups of owners of preferred shares are created, which by the total number of votes affect the company’s serious decisions – merger or acquisition.
- Ordinary – give the right to receive non-fixed dividends, in accordance with the decision of the Board of Directors and the meeting of shareholders.
The number of shareholders in a given JSC is regulated by the legislation of the country in which the company is registered. In the Russian Federation, a range is allowed: the minimum number is 1, the maximum is 50. For an LLC (limited liability company), the maximum threshold is 10 people (legal entities or individuals).
Differences from the investor
In fact, a shareholder is the same investor who invests capital on a long-term or short-term basis with the aim of making a profit (dividends, exchange rate differences from the sale of securities).
But if we consider these concepts separately, then the shareholder is more interested in the efficient operation of the company, which will bring him stable, long-term income. At the same time, the investor invests his funds in order to obtain a one-time profit and withdraws capital immediately after the goal is achieved.
A shareholder and an investor (if investments are made in shares) have identical rights, but different mechanisms for their use:
- The investor almost never takes part in shareholders’ meetings;
- Individuals who have invested in shares amounts not exceeding $ 1,000 are not interested in receiving dividends. The goal is to sell securities at a high cost.
- The investor has the right to demand a return of capital if the company’s activities are in doubt. The shareholder receives compensation only in the order of priority provided for by the articles of association of the company.
- A shareholder is liable for the property obligations of the company only within the limits of his investments in the authorized capital (the number of shares). At the same time, the investor runs the risk of being left without all investments, including investments in equipment, personnel, etc.
The information is relevant in the context when an individual or legal entity invests not only in the company’s shares, but also in development, raw materials, materials, equipment. If we are talking only about the purchase of securities, then there is no difference between an investor and a shareholder.
Ownership of shares of an enterprise gives the holder a whole range of rights, which are classified according to a number of criteria:
- By the type of legislative act that defines the rights (Laws: on the securities market, on joint stock companies, on the privatization of municipal and state organizations).
- By the level of protection of rights – inalienable (protected by the Law) and inalienable (can be granted or withdrawn by the decision of the meeting of shareholders).
- The nature of the emergence of rights – unconditional and conditional. Unconditional rights include:
- Participation in meetings of shareholders;
- Receiving part of the distributed profit in proportion to the number of shares;
- Receiving compensation in the event of liquidation of the company (after payment of debts to priority creditors);
- Obtaining a report on the financial result.
Conditional rights are defined:
- type of shares (preferred, ordinary);
- type of JSC (open and closed companies);
- external circumstances (accumulation of a certain block of shares by a separate participant, reorganization of the company, amendment of the charter, etc.).
- Legal characteristics – property, non-property.
The shareholder has a number of property rights that arise in the process:
- purchase of shares;
- alienation of securities (sale);
- receiving dividends;
- receiving part of the property after the liquidation of the company;
- receiving compensation for the damage caused by the joint stock company.
The rights of the owners of shares, which cannot be attributed to property relations, but which have a significant impact on the amount of present (future) income, are:
- direct participation in the administrative activities of the company – meeting of shareholders, voting, audit control;
- prompt receipt of reliable and up-to-date information on the activities of the enterprise.
They arise when an employee of an enterprise is also the owner of shares.
This situation took place everywhere during the period of total privatization of state organizations. In such cases, workers are endowed with two types of rights. As a shareholder, he has the right to take part in meetings, voting, make proposals to change the administrative staff and other important events related to the activities of the JSC.
As an employee, he has all the rights stipulated in the Labor Code. If, for any reason, the company violates the terms of the collective (individual) agreement, the employee-shareholder has the right to put on the agenda the issue of taking appropriate measures.
In addition to the numerous and complex rights in their classification, the shareholder has responsibilities.
- to contribute capital for shares, in the amount and in the manner determined by the company’s charter, legislation;
- sign an agreement on non-disclosure of confidential information related to the activities of the enterprise;
- if a shareholder is an employee of the company, he is obliged to sell his shares to the founders at market value after dismissal of his own free will;
- a shareholder is obliged to notify the company’s management if he has acquired a significant package of securities that gives him the right to make management decisions. As a rule, these are packages from 5 to 30% of the total number of shares issued on the stock market.
But the acquisition of a significant amount of securities in most cases is not available to an ordinary individual. Purchases of this kind are strictly monitored by the Antimonopoly Committee (regulated by the Law on Competition, Article 18, Clause 1.2).
Everyone who is interested in increasing their income with the help of the stock exchange should understand who a shareholder and investor is. Successful practice is impossible without basic knowledge. This will not only protect a novice entrepreneur from making erroneous decisions, but will also make it possible to take the first step as efficiently as possible, even with a minimum start-up capital.
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