A shareholder is someone or a corporation that holds the majority of shares in a company through the purchase of shares on the stock exchange. Dividends are paid to shareholders whenever the company improves its stock value or financial profits. Shareholders are not personally accountable for the liabilities and debts of the business, but they are responsible for the risk when they invest their money in it.
The kinds of shareholders in an organization can be split into two broad categories – the ones who own common shares as well as those who own preferred shares. It is also possible for companies to further break them down on a basis of class, with different rights being assigned to different types of shares.
Common shares are often given to employees as a part of their pay and they are also entitled to voting rights on matters that affect the business and also receiving dividends from the company’s profit. They are second in line to preference shareholders in relation to the rights to assets in the event of the event of liquidation.
Preferred shareholders aren’t able to take part in management decisions. They also do not have a fixed dividend rate, and the amount will fluctuate according to the profitability of the business in any particular year. Additionally the dividends are paid prior to the common shares in the event of liquidation. Shareholders can have other rights like the right to receive a preferred or special dividend, or no dividend.