A shareholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. By law, a person is not a shareholder in a corporation until their name and other details are entered in the corporation's register of shareholders or members. The influence of a shareholder on the business is determined by the shareholding percentage owned. Shareholders of a corporation are legally separate from the corporation itself. They are generally not liable for the debts of the corporation and the shareholders' liability for company debts are said to be limited to the unpaid share price unless if 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 are on the record as owners of a shareholding, the first one on the record is taken to have control of the shareholding, and all correspondence and communication by the company will be with that person. Shareholders may have acquired their shares in the primary market by subscribing to the IPOs and thus provided capital to the corporation. However, most shareholders acquire shares in the secondary market and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on a share class. The board of directors of a corporation generally governs a corporation for the benefit of shareholders. Shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, employees, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value or are impacted by the corporation.
Types
A beneficial shareholder is the person that has the economic benefit of ownership of the shares, while a nominee shareholder is the person who is on the corporation's register as the owner while being in fact acting for the benefit and at the direction of the beneficiary, whether disclosed or not. Primarily, there are two types of shareholders.
Common shareholders
An individual or an institution can be a common shareholder who owns common shares within a company. This type of shareholding is more common. Common shareholders have the right to influence decisions concerning the company and can file class action lawsuits in case any wrongdoing happens.
Preferred shareholders
In this, the shareholder is paid a fixed sum of dividend even before the common shareholders and they have no voting rights within the company.
The above-mentioned rights can be generally classified into cash-flow rights and voting rights. While the value of shares is mainly driven by the cash-flow rights that they carry, 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:
