A shareholder can be a person, company or organisation that holds stocks in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner.Shareholders typically receive declared dividends if the company does well and succeeds.
Also called a stockholder, they have the right to vote on certain matters with regard to the company and to be elected to a seat on the board of directors.
A shareholder can be any age. You can issue shares to a child, adult or senior citizen if you want to. However, before issuing shares to anyone under 18 we suggest you seek advice from your preferred bank to see if having a child as a shareholder will affect your ability to obtain a business bank account. Under 18s cannot legally enter into contracts which creates problems.
You can have as many shareholders in your company as you want. Once you have entered the first shareholder you will be given the option to include additional shareholders.
Who becomes a shareholder?
Any individual person can take the shares of the company and become a shareholder in it. However a minor person is not eligible to enter into agreements that make the contracts entered into by minor null and void. In this regard the guardian of the minor is allowed to enter into the share purchase transaction on behalf of the minor.
A company is also allowed to become the member of the company by purchasing its shares. However, in order to become the member the company is required to pass the board resolution in this regard by convening a proper board meeting in this regard.
An unregistered partnership firm is not a legal entity and thus is not considered as separate entity from its partners. Thus, the partnership firm is not eligible for becoming the shareholder of the firm. However, the registered partnership firm is eligible to become the shareholder of the company.
Unlike a traditional partnership firm a Limited Liability Partnership is a separate legal entity from its members and thus is eligible to enter into any transaction on its own behalf. This make the LLP authorized to become the shareholder in the company.
If the trust is not registered as cooperative society it cannot hold shares in its name but the trustees of the trust can hold the shares of any company. However, when the trust is registered as the co-operative society it can hold shares in its name.
The shares of a company can be held jointly by two or more persons. As per Companies Act, 2013 in the case of a public company every joint shareholder is counted as a separate member but in the case of a private company, joint holders are treated as a single member.
Types of shareholders
The two basic types of shareholders are:
- Common shareholders: This type of shareholder owns part of a company through common stock and has voting rights as well as potential dividend payments.
- Preferred shareholders: This type of shareholder doesn’t have the same voting rights. A major difference is that they have priority over dividend payments over common shareholders.
Rights of shareholders
Shareholders enjoys several rights as per company laws. Few of these include-
- Control over the company’s key executive decisions, like the appointment of board members.
- Receiving dividends.
- Right to look through a company’s records and books.
- Attending annual general meetings, either in person or through conference calls.
- Power to sue a company, in case of misdeeds on the parts of its officers or directors.
- In case a shareholder is unable to attend a meeting, he/she has the right to vote on a company’s key matters by proxy, via online platforms.
Importance of shareholders
While these part-owners earn profit by investing in a company’s stocks, they also play an important role in operating, financing, governing and controlling various aspects of a business. For instances,
- Company operations.
- Financing a company.
- Governing a company.
- Control over a company.
Thus, with the control over the majority of aspects of a company’s operations, shareholders play a significant role in its overall performance and profits.