Shareholders are the people who own shares in the company, and profit from the company’s performance. One can invest in various ways as a shareholder whether it is a public or private business.
A shareholder can also sell their shares to other investors, allowing them to earn a profit on their investment. If the company’s profits rise in value, the value of shares will rise as well, and this is known as capital gain. Shareholders may be individuals or legal entities, and they could also be part of a company.
There are various kinds of shareholders and their rights and priviliges depend on the type of share. Certain shares have voting rights however, others do not. In addition, certain kinds of shares enjoy a certain preference over other classes of dividend payouts. These rights are outlined in the company’s charter or bylaws, as well in state law.
Common preferred, institutional and other categories are the main types of shareholders. Common shareholders are those who own the company’s common stock, and they enjoy the right to vote on corporate issues and business decisions. Dividend payments are based on the company’s earnings. Preferred shareholders, on other side, have a higher priority than common shareholders in terms of dividend distribution. They also have more rights to assets in the event of liquidation. Institutional shareholders are big organizations such as pension funds, mutual funds, and hedge funds that hold large amounts of shares in the company.