Definition of a Primary Stockholder

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The term "stockholder" is also interchangeable with "stakeholder." Companies raise money via the stock exchange by offering public, private and individual entities a chance to buy a stake of the company in the form of stocks/shares. A stockholder is a person, group or entity that has ownership of a company’s shares on the stock exchange. A primary stockholder has the single largest shareholding in a publicly traded company.

Types of Stockholders

Companies traded on the stock market have varying types of stockholders who influence or are affected by the company’s directives, actions, policies and management styles. The main stockholders, therefore, are usually employees of the company, creditors, customers, suppliers, the government and any other entity from which the company raises capital.

Categories of Stockholders

Stockholders do not all have the same rights and entitlements. Depending on how stockholders acquired the company’s stocks, some may have more privileges than others. Companies offer two main types of stocks: common stock and preferred stock. Common stockholders are entities mainly interested in the trading of a firm’s shares with the hope of a profit. Primary stockholders differentiate themselves here in that they buy shares with the intent of having control. They, therefore, attempt to buy as much stock as possible. Preferred shareholders buy stocks which have special conditions. This stock cannot be sold at will, and these shareholders have a contract with the company. Because of their permanency in nature, preferred stockholders get dividends in the form of interest, regardless of whether a company makes a profit or loss. Just as much, a company’s customers, while entitled to fair trading practices, are not entitled to the same privileges as the company’s employees.

Advantages for Primary Stockholders

As the single largest stockholder in a company, the primary stockholder has two distinct advantages over any other stockholder. The first main advantage is that he has the right to direct control within the company. As the primary stockholder has the most to lose in the case of a company’s dissolution, he may be given the right to have a seat on the board of directors of the company. Secondly, as the single largest stockholder, he sees a direct financial gain each time dividends are declared. Being a primary stockholder also exempts him from being accountable or having duties towards other stockholders in the same way that directors and officers of a company do because of the binding of fiduciary duties which are created for the protection of shareholders’ interests.

Disadvantages for Primary Stockholders

The single largest disadvantage for a primary stockholder arises during the dissolution or disintegration of a company. The primary stockholder is hardest hit in losses as he has the largest financial stake, and regardless of his stake, it will always be subordinate to the rights of the company’s creditors. If the company is liquidated or bankrupt, the primary stockholder will typically also receive nothing.

Rights of a Primary Stockholder

Depending on the class of stock held by the primary stockholder, he has special privileges or rights which may include the right to vote on company matters, such as elections for the board of directors, the right to propose stockholder resolutions and the right to a company’s assets during its liquidation.

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