The Types of Shareholders in a Business

08 Oct The Types of Shareholders in a Business

A shareholder is someone or a company that holds an interest in a company, by buying shares on the stock exchange. Shareholders earn rewards when the company succeeds in boosting its stock value and financial returns through dividends. Shareholders are not personally liable for the obligations and debts of the business, but they are liable when they invest their money into it.

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

Employees are often granted common shares as part of their compensation. They enjoy voting rights over business issues and are paid dividends from the profits of the business. They rank after preference shareholders in relation to the rights to assets in the event of a liquidation of the business.

Preferred shareholders are not allowed to take part in management decisions. The dividend rate is not fixed and will vary depending on the financial performance of the company in any given year. They also get paid prior to the common share is dissolved in a company’s liquidation. Shareholders can have other rights like the possibility of receiving a preferential or special dividend, or no dividend.

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