Three Categories of Shareholders
BusinessDictionary.com defines a shareholder as "an individual, group, or organization that owns one or more shares in a company, and in whose name the share certificate is issued." Shareholders also are referred to as stockholders and are the owners of a company. They invest their money in a company by purchasing shares issued by the company, thus entitling them to an equivalent claim of the company's profits.
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Shares
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Shares are units of ownership representing equal proportions of a company’s capital.
Upon formation, public companies are required by law to offer shares to the public. This is the legally recognized way for companies to raise capital for financing their operations. When an investor buys shares in a particular company, he is issued with a document known as a share certificate showing the quantity and value of shares purchased. In the event the company closes or is taken over through a merger, shareholders are paid back the value of shares held.
Ordinary Shareholders
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Ordinary shareholders or common stockholders hold ordinary shares in a company. They are entitled to a share of profit only when the company is doing well financially. If the company trades at a loss during a financial year, they get nothing. Ordinary shareholders exercise their control through voting rights at the company's annual general meeting, where they elect the board of directors and vote on the corporate policies of the company. Regarding the share of profits, ordinary shareholders are paid dividends after all other categories of shareholders have been paid; in the event of dissolution of the company, they are the last group to lay claim to its assets. They form the largest group of company owners. Ordinary shares have the potential for high financial returns but also have the highest risk in case of company liquidation.
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Preference Shareholders
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Also referred to as preferred stockholders, preference shareholders receive preferential treatment over ordinary shareholders. They are entitled to fixed periodic dividends regardless of profits made by a company. During the share of profit and in case of liquidation or sale of a company, preference shareholders are paid first, before the ordinary shareholders. However, preferred shareholders do not enjoy voting rights during shareholders’ meetings. These shareholders do not see a larger gain from an increase in a company’s profits but are covered when the profits are low.
Redeemable Shareholders
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Redeemable shareholders have an agreement with the company issuing the shares that the company will buy back the shares at a future date. This date can be fixed or at the choice of the company. Redeemable shareholders do not have any voting rights at the shareholders annual general meeting. A company cannot issue redeemable shares only.
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