Responsibilities & Rights of a Corporation Shareholder

Preferred shareholders do not always have voting rights.

Shareholders are individuals who've bought shares of stock issued by corporations. After purchasing stocks, shareholders become company owners and gain certain rights and responsibilities. These include voting on important business decisions, having access to some company information, and possibly taking on corporate losses.

Information

Shareholders have the right to access financial information about their corporations. They're entitled to view their companies’ books and records such as annual reports. By looking at annual reports, shareholders get a glimpse of their corporations’ financial health over the past year. Annual reports include financial statements such as: income statements; balance sheets and auditor’s reports; new product plans; and corporate information.

Shares

Shares bought by individuals become their responsibility. Shareholders sell their stocks when they want to. Corporations cannot force shareholders to sell their stocks or to sell them at prices lower than their market values. However, there is a chance some shareholders won’t receive any money for their shares. If their corporations go bankrupt, preferred shareholders, who own stock of a higher class than common stock, are in line to be paid before common shareholders. This can mean common shareholders won't get paid if no funds are left.

Dividends

When corporations earn profits, they distribute them to shareholders via dividends. Each shareholder has the right to participate in the company's profits. Depending on the type of stock purchased, some shareholders receive dividends before others. For example, owners of preferred stock are entitled to dividends before those who own common stock.

Voting

When corporations make decisions such as merging with other companies, acquiring new business partners or proposing new stock option plans, shareholders have the right to voice their opinion on these matters. They do so by voting. Shareholders attend annual and special meetings to speak on corporate decisions and vote in person. If they can't attend, shareholders can cast their votes via proxy. To cast proxy votes, shareholders authorize members of their company’s management to cast votes on their behalf. Shareholders who hold stock through banks or dealers are considered beneficial voters and must cast their votes through their bankers or brokers, who then submit it via proxy.

Shareholder Oppression

Minority shareholders, who own less than 50 percent of their companies’ capital, are entitled to basic shareholder rights. However, if they feel the majority shareholders of their corporation are depriving them of their rights -- such as voting privileges or their fair share of dividends -- minority shareholders can file lawsuits against their corporations claiming such improprieties.

Capital Losses

Shareholders participate in the profits of their corporations, but share in the losses as well. This applies to shareholders of an S corporation, which is a subchapter of a regular corporation. Unlike regular corporations, S corporations cannot deduct or carry forward capital losses to future years. This means if S corporations suffer capital losses, they are distributed to their shareholders, who must report it on their individual tax returns. Shareholders can deduct up to $3,000 per tax year in capital losses, and any amounts remaining must be carried over to the next tax year.

References

• Rudolph Friedmann LLP: Shareholder and Stockholder Rights
• The Finance Professionals Post: Preferred Stock Versus Common Stock
• SEC: Exercise Your Voting Rights In Corporate Elections
• The Burk Law Firm: Minority Shareholder Oppression Lawyers
• Saving To Invest: 2011 and 2012 Capital Gains and Losses: Tax Facts and Figures