Stockholders are partial owners of a company by virtue of the stocks they own. Companies issue two main types of stocks: common stocks and preferred stocks. Stockholders always face risks with their investments. If the company is liquidated, they are paid only after the company has paid off its external creditors. Companies accord their stockholders several rights and privileges; different types of stocks bring different rights.
Right to Dividends
The primary aim of any company is to make profits. These profits are then passed on to the stockholders as dividends. Every quarter, the money that remains after the company has paid its creditors is classified as profit. The company's board of directors decide whether the money should be retained in the business for its operations and initiatives or whether it should be distributed to the stockholders as dividends. The board of directors also decide on the amount of those dividends. Whenever dividends are declared, the company first pays its preferred stockholders and then the common stockholders.
Common stockholders have voting rights in the company. Companies hold annual general meetings, where the management and board of directors elucidate their plans and proposals for the future. Stockholders have the right to either accept or reject the proposals. Stockholders are given voting rights according to the number of stocks they hold in the company. A stockholder who holds 200 stocks has more votes than one who has 100 stocks.
Right to Financial Information
Companies are obligated to provide financial data to all its stockholders. The company is required to prepare quarterly and annual financial statements for its stockholders. The stockholders analyze these statements and then decide on what to do in the future. When the stockholders find that the company's profits are dipping; they may lower their levels of investment. When the stockholders find that the prices of stocks and the profits are rising, they buy more and more numbers of stocks of the company.
Right to Transfer Ownership
When stockholders purchase stocks of the company. they are issued stock certificates. These certificates accord them the right to sell their interest in the company at any time they desire. These stocks are easily traded on stock exchanges. Once a person sells off her interest in the company, she is no longer a partial owner of the company. The person who buys the stocks becomes the company's new stockholder.
Right to Sue
If the stockholders feel the company is engaging in wrongful acts, they have the right to seek legal remedies. For example, if the stockholders find that the company is breaking the law, they have the right to sue the board of directors.