What Role Do Stockholders Play Within a Company?

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Stockholders are the owners of a company. Stock ownership comes with certain responsibilities and privileges. Some companies have more than one kind of common stock and stock benefits differ among the various share classes. All common stock shareholders have specific guaranteed rights.

Public vs. Private Ownership

  • Stock represents ownership of a company. One share of common stock entitles the owner to the rights and obligations of ownership, including an interest in the assets and earnings of a corporation. Private companies are owned by an individual, several individuals, other entities likes venture capital firms or by the company’s employees. Shares of the common stock of publicly held companies are traded on the stock exchange.

Rights of Ownership

  • Stock ownership entitles the owner to participate and vote in annual meetings. These meetings are mandated by law and are to be scheduled each year. They are open to all stockholders. Shareholders do not participate in the day-to-day active management of a company unless they are corporate officers, managers or other employees who happen to own stock. Each year, a company produces an annual report detailing the financial condition of the company. The report lists the company’s top managers and their compensation. The report also lists the top shareholders and summarizes corporate sales, earnings and important company events that occurred during the year, such as acquisitions. An annual report will also relate the company’s plans for the future. Stockholder meetings allow managers to review the company before shareholders and answer their questions. Shareholders, including Board of Directors positions, routinely vote a number of issues on annually.

Activist Shareholders

  • Individuals and groups that have issues with particular companies buy a share or two of stock so they can attend annual meetings and air their grievances. Shareholder activism is on the rise. A study conducted by Institutional Shareholder Services in 2010 verifies that communications and confrontation between shareholders and management have increased and cover more matters than in the past.

Company Buy-Outs

  • Individual investors and companies interested in owning or controlling a company purchase a large enough percentage of shares to get management’s attention and influence the company. They will often try to put their own people on the Board of Directors. Companies interested in acquiring another company will buy shares in the marketplace and offer to buy shares from all of the company’s outstanding shareholders. The acquiring company will become the new owners if enough shareholders sell their stock. Sometimes there is what is termed a proxy fight between the company attempting to buy and the company being pursued. If the company does not want to be purchased, the dispute is called a hostile takeover.

References

  • Photo Credit William Thomas Cain/Getty Images News/Getty Images
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