The Types of Shareholders in a Business

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A shareholder is a person or corporation that holds part ownership of a business by buying shares on the market for stocks. Dividends are paid to shareholders whenever the company improves its stock value and profits. Shareholders don’t have to take on the responsibility of the liabilities or debts of the company, however they take on a risk when they invest.

Shareholders can be divided into two broad categories: those who hold common shares, and those who have preferred shares. It is also possible for companies to further divide these shares on a class basis with different rights being attached to the various types of shares.

Employees are often granted common shares as a part of their compensation. They enjoy voting rights over business matters and receive dividends from the profits of the company. They are ranked after preference shareholders when it comes to the rights to assets in the event of the event of a liquidation of a business.

Preferred shareholders, on the other hand are not able to participate in the management decisions of the company. The dividend rate isn’t set and will fluctuate based on the financial health of the company during any particular year. In addition to this, they are paid before the common shares in the event of liquidation. It is possible for shareholders to be granted a number of additional rights, including the right to a preferential dividend, a special dividend or even no dividend at all.