A shareholder, commonly referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock. Because shareholders are a company's owners, they reap the benefits of the company's successes in the form of increased stock valuation.
If the company does poorly and the price of its stock declines, however, shareholders can lose money.
Unlike the owners of sole proprietorships or partnerships, corporate shareholders are not personally liable for the company's debts and other financial obligations. If the company becomes insolvent, its creditors cannot demand payment from shareholders.
Although they are partial owners of the company, shareholders do not manage operations. An appointed board of directors governs the company's activities and operations.
Shareholders enjoy certain rights, which are defined in the corporation's charter and bylaws:
The specific rights allocated to both common and preferred shareholders are outlined in each company's corporate governance policy.
Many companies elect to issue two types of stock: common and preferred. Most shareholders are common stockholders primarily because common stock is less expensive and more plentiful than preferred stock. Common stock is generally more volatile and more likely to generate profits compared to preferred stock, but common stock holders have voting rights. Preferred stockholders generally have no voting rights because of their preferred status. They receive fixed dividends, generally larger than those paid to common stockholders, and their dividends are paid before common shareholders. These benefits make preferred shares a more useful investment tool for those primarily looking to generate annual investment income.