The Types of Shareholders in a Business

A shareholder is a person or a corporation who owns a share of a company through buying shares on the market for stocks. Dividends are paid out to shareholders when the company increases its stock value or financial profits. Shareholders don’t have to take on the responsibility of the obligations or debts of the company, however they are taking on the risk of investing.

The kinds of shareholders who are part of an organization can be split into two broad categories namely the ones who own common shares and those who own preferred shares. It is also possible for companies to break these down by class, with different rights being attached to the various types of shares.

Employees are usually awarded common shares as part of their compensation. They are entitled to vote over business issues and are paid dividends from the profits of the business. When it comes to the right of assets in a business liquidation, they are ranked behind preferred shareholders.

Preferred shareholders However, they are not able to participate in management decisions of the company. The dividend rate is not fixed and can change based on the performance of the company in any given year. They also get paid prior to the common share is distributed in the event of a company’s liquidation. Shareholders can have other rights such as the right to receive a preferred or special dividend, or no dividend.