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A shareholder (also known as stockholder) is an individual or institution (including a corporation) that legally owns one or more shares of the share capital of a public or private corporation. Shareholders may be referred to as members of a corporation. A person or legal entity becomes a shareholder in a corporation when their name and other details are entered in the corporation's register of shareholders or members.[1]

The influence of a shareholder on the business is determined by the shareholding percentage owned. Shareholders of a corporation are legally separate from the corporation itself. They are generally not liable for the corporation's debts, and the shareholders' liability for company debts is said to be limited to the unpaid share price unless a shareholder has offered guarantees. The corporation is not required to record the beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one person is on the record as owners of a shareholding, the first one on the record is taken to control the shareholding, and all correspondence and communication by the company will be with that person.[clarification needed]

Shareholders may have acquired their shares in the primary market by subscribing to the IPOs and thus provided capital to the corporation. However, most shareholders acquire shares in the secondary market and provided no capital directly to the corporation. Shareholders may be granted special privileges depending on a share class. The board of directors of a corporation generally governs a corporation for the benefit of shareholders.

Shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, employees, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value or are impacted by the corporation.


A beneficial shareholder is the person that has the economic benefit of ownership of the shares, while a nominee shareholder is the person who is on the corporation's register as the owner while being in fact acting for the benefit and at the direction of the beneficiary, whether disclosed or not.

Primarily, there are two types of shareholders.

Common shareholders

An individual or an institution can be a common shareholder who owns common shares within a company. This type of shareholding is most common. Common shareholders have the right to influence decisions concerning the company and can file class action lawsuits, when warranted.[2]

Preferred shareholders

Preferred shareholders are paid a fixed sum of dividend before common shareholders are paid dividends. They also have no voting rights within the company.[3]


Subject to the applicable laws, the rules of the corporation and any shareholders' agreement, shareholders may have the right:

  • To sell their shares.[4]
  • To vote on the directors nominated by the board of directors.[4]
  • To nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions.[4]
  • To vote on mergers and changes to the corporate charter.[4]
  • To dividends if they are declared.[4]
  • To access certain information; for publicly traded companies, this information is normally publicly available.[4]
  • To sue the company for violation of fiduciary duty.[4]
  • To purchase new shares issued by the company.
  • To vote on & file shareholder resolutions.
  • To vote on management proposals.
  • To what assets remain after a liquidation.

The above-mentioned rights can be generally classified into (1) cash-flow rights and (2) voting rights. While the value of shares is mainly driven by the cash-flow rights that they carry ("cash is king"), voting rights can also be valuable. The value of shareholders' cash-flow rights can be computed by discounting future free cash flows. The value of shareholders' voting rights can be computed by four methods:

  • The difference between voting shares and non-voting shares (dual-class approach).[5]
  • The difference between the price paid in a block-trade transaction and the subsequent price paid in a smaller transaction on exchanges (block-trade approach).[6]
  • The implied voting value obtained from option prices.[7]
  • The excess lending fee over voting events.[8]

See also


  1. ^ Fontinelle, Amy (26 November 2003). "Shareholder".
  2. ^ "Shareholder - Definition, Roles, and Types of Shareholders". Corporate Finance Institute. Retrieved 2019-02-19.
  3. ^ Wright, Tiffany C. "Common Vs. Preferred Stock for Financing a Private Company". USA Today. Retrieved 23 June 2021.
  4. ^ a b c d e f g Velasco, Julian (2006). "The Fundamental Rights of the Shareholder" (PDF). UC Davis L. Rev. 40: 407–467. Retrieved 16 April 2018.
  5. ^ Zingales, Luigi (1994). "The value of the voting right: a study of the Milan stock exchange experience". Review of Financial Studies. 7: 125–148. doi:10.1093/rfs/7.1.125.
  6. ^ Dyck, A.; Zingales, L. (2004). "Private benefits of control: an international comparison". Journal of Finance. 59: 537–600. doi:10.3386/w8711.
  7. ^ Kind, Axel; Poltera, Marco (2013). "The value of corporate voting rights embedded in option prices". Journal of Corporate Finance. 22: 16–34. doi:10.1016/j.jcorpfin.2013.03.004.
  8. ^ Christoffersen, Susan; Geczy, Christopher; Musto, David; Reed, Adam (2007). "Vote Trading and Information Aggregation". The Journal of Finance. 62 (6): 2897–2929. doi:10.1111/j.1540-6261.2007.01296.x.