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Ashareholder (in the United States often referred to asstockholder) ofcorporate stock refers to anindividual orlegal entity (such as anothercorporation, abody politic, atrust orpartnership) that is registered by the corporation as the legal owner ofshares of theshare capital of apublic orprivate corporation. Shareholders may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a corporation when their name and other details are entered in the corporation's register of shareholders or members,[1] and unless required by law the corporation is not required or permitted to enquire as to thebeneficial ownership of the shares. A corporation generally cannot own shares of itself.[2]
The influence of shareholders on the business is determined by the shareholding percentage owned. Shareholders of corporations are legally separate from the corporation itself. They are generally not liable for the corporation's debts, and the shareholders' liability for company debts is said to be limited to the unpaid share price unless a shareholder has offered guarantees. The corporation is not required to record the beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one person is on the record as owners of a shareholding, the first one on the record is taken to control the shareholding, and all correspondence and communication by the company will be with that person.[3]
Shareholders may have acquired their shares in theprimary market by subscribing to theIPOs and thus providedcapital to the corporation. However, most shareholders acquire shares in thesecondary market and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on the particularshare class that they hold. Theboard of directors of a corporation generally governs a corporation for the benefit of shareholders.
Shareholders are considered by some to be asubset ofstakeholders, which may include anyone who has a direct or indirect interest in thebusiness entity. For example,employees,suppliers,customers, thecommunity, etc., are typically consideredstakeholders because they contribute value or are impacted by thecorporation.
Abeneficial shareholder is the person or legal entity that has the economic benefit of ownership of the shares.
Anominee shareholder is the person or entity that is on the corporation's register of members as the owner while being in reality that person acts for the benefit or at the direction of the beneficial owner, whether disclosed or not.
A nominee shareholder relationship in most jurisdictions is governed bytrust law, and therefore is simple and passive: generally, the nominee is not required to do anything except carry out specific (lawful) actions if so directed by the beneficiaries. In the event a nominee becomesinsolvent, the beneficial shareholder should not be affected as the nominee'screditors cannot take possession of the trust assets.
In some Asian jurisdictions, nominee shareholding is achieved through contract law and is very complex and risky. For example, in China under theSupreme Court rules, using a nominee shareholder is ineffective in preventing debt collection actions, as a nominee shareholder cannot escape liability for this on the grounds that they are not the beneficial owner. If acapital call is made and the beneficial owner omits to provide additional funding, the nominee shareholder is liable to fund the capital call using their own funds. Finally, shares held by a nominee shareholder can be inherited or subject tomarital property division.[4]
An individual or legal entity that ownsordinary shares of a company (in the United States commonly referred as common stock) is usually referred to as an ordinary shareholder. This type of shareholding is generally the most common. Ordinary shareholders have the right to influence decisions concerning the company by participating at general meetings of the company and in the election of directors and can file class action lawsuits, when warranted.[5]
Preference shareholders are owners ofpreference shares (in the United States commonly referred as preferred stock). They are paid a fixed rate of dividend, which is paid inpriority to the dividend to be paid to the ordinary shareholders. Preference shareholders usually do not have voting rights in the company.[6]
Subject to the applicable laws, the rules of the corporation and anyshareholders' agreement, shareholders may have the right:
The above-mentioned rights can be generally classified into (1) cash-flow rights and (2) voting rights. While the value of shares is mainly driven by the cash-flow rights that they carry ("cash is king"), voting rights can also be valuable. The value of shareholders' cash-flow rights can be computed by discounting future free cash flows. The value of shareholders' voting rights can be computed by four methods:
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