What Are Shareholders?

Shareholders are people who own property of a company, and thereby obtain economic rights and privileges or on the management of the same.

Whether we have a company, or we dedicate ourselves to investments, we must know the figure of the shareholder to be able to act when looking for investors or to become a good corporate shareholder.

In this post we are going to tell you what shareholders are, what rights they have, and some of the most important types of this business figure.

In Money Investors we train investors around the world, so that all those who want to invest can do so with knowledge, avoiding deception and scams, and getting the most out of all their investments. You can learn about the material of our courses on our website, and access the basic or advanced course, depending on the level with which you enter the world of investments.

What are shareholders?

Shareholders, also known as stakeholders, are any person or institution that owns one or more shares of a company.

Shareholders are the owners of the company they own, and these shares confer certain rights and privileges on shareholders. As well as the possibility of obtaining a return on equity.

When a company seeks to grow, it is normal to resort to the sale of shares in a company, in order to find financial or strategic partners who get involved with the organization and increase the growth possibilities of our company.

The responsibility and decision-making power of a shareholder over a company is given in proportion to the amount and type of shares it owns.

Shareholders rights

The rights that shareholders have can be of two types:

Economic rights: these rights grant the power to receive dividends, freely sell the shares and even receive part of the value of a company if it is sold in an acquisition action by another organization.

Management rights: these rights refer to decision-making, they are strategic shareholders, and they have the right to vote and access to company information to find out about their situation.

The number of shares that a shareholder owns are directly proportional to the number of votes that they can exercise, that is, the greater the number of shares, the greater the possibility of participating in its administration and decision-making.

Usually the shareholders have a committed participation with the companies, they not only contribute money for the operation, but also take care of their management in person. Although there are shareholders who delegate this management task and are only limited to the collection of dividends.

The latter is usually the most common case of the owners of shares of companies that are in stock exchanges. They buy shares in order to obtain benefits with it but without getting involved in its management.

Shareholders example

Suppose that a day trader buys 100 ordinary shares of company A. As long as these shares are in the day trader’s brokerage account, the day trader is a shareholder of company A and has all the rights and privileges of the shares he owns.

When the day trader sells the shares of company A, he ceases to be a shareholder of this company and loses all rights and privileges associated with the ownership of these shares.

Types

There are two general types of shareholders: one for preferred shares and one for ordinary shares.

Common shares represent everyday stocks that are openly traded on most exchanges. And they trade as representative shares when referring to company shares. These shares confer voting rights and dividends, as well as other possible rights and privileges.

Preferred shares do not carry voting rights, and tend to have a higher dividend share and priority in the payout of profits or liquidation value.

The importance of shareholders

The institution of shareholders is the core of modern capitalism. The distribution of ownership of public companies among large numbers of profit-oriented and unrelated shareholders means that modern companies must compete to maximize profits. This is in contrast to the institutional bloat and executive aggrandizement seen in many companies in less developed nations.

The shareholders act as a control behaviors potentially suboptimal management and company executives. Which leads to the highest possible social welfare produced by the company.

Even privately owned companies must compete with these public companies. This forces them to adopt some or all of the most efficient market practices produced by the generalized use of the shareholder institution.

In contemporary markets there is a growing trend towards dual class share ownership. Especially in the technology sector, which limits the traditional powers of shareholders and concentrates decision-making in the hands of one or a small number of executives, usually the founder or founders of the company.

This trend is young enough that its full impact is still unknown. But it has many critics among financial professionals who believe it allows executives too much capacity. To satisfy personal desires instead of concentrating on profit maximization.

Shareholders and trading

Day traders can create profitable positions by discovering who are the major institutional investors of certain companies and anticipating their reactions to certain events.

Many institutional investors are limited by publicly available trading strategies and their known beliefs and values. Which makes them potentially predictable in certain scenarios.

Conclusions

The shareholders are the cornerstone of modern capitalism. Day traders should follow the evolution of the new trend of dual-class ownership of public companies. Since this phenomenon has the potential to drastically alter the functioning of companies and markets in advanced capitalist economies.

They can do it knowingly, avoiding deception and scams, and getting the most out of all their investments. You can learn about the material of our courses on our website, and access the basic or advanced course, depending on the level with which you enter the world of investments.

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