Definition
Stockholders
Stockholders, also known as shareholders, are individuals, businesses, or groups that own shares in a corporation. This ownership entitles them to a proportionate interest in the corporation’s assets and earnings. Stockholders can be classified into two main types: common stockholders and preferred stockholders. Common stockholders have voting rights and may receive dividends, while preferred stockholders typically receive dividends at a fixed rate and have precedence over common stockholders in asset liquidation.
Detailed Examples
- Individual Investors: John Doe bought 100 shares of XYZ Corporation in hopes of receiving dividends and capital appreciation. By holding shares, John becomes a stockholder and gains partial ownership of XYZ Corp.
- Institutional Investors: ABC Investment Fund, a mutual fund company, holds five million shares of Tech Innovators Inc. As a stockholder, ABC Investment Fund can influence significant decisions at Tech Innovators’ annual meetings through its voting rights.
- Employee Ownership: Emily works for DEF Corporation and participates in the company’s stock purchase plan, buying shares monthly. Emily, thus, is a stockholder of DEF Corporation and benefits from any stock price appreciation.
Frequently Asked Questions
What rights do stockholders have?
- Voting Rights: Common stockholders typically have the right to vote on corporate matters such as the election of the board of directors and major corporate policies.
- Dividends: Stockholders may receive dividends, which are payments made out of the corporation’s profits.
- Asset Claims: In the event of liquidation, stockholders have a right to the corporation’s remaining assets after debts have been paid, with preferred stockholders having priority over common stockholders.
What is the difference between common and preferred stock?
- Common Stock: Common stockholders have voting rights and can receive variable dividends. Their claim on assets upon liquidation is subordinate to that of preferred stockholders.
- Preferred Stock: Preferred stockholders usually do not have voting rights but receive fixed dividends and have a higher claim on assets compared to common stockholders.
How do dividends work for stockholders?
Corporations may distribute a portion of their profits to stockholders in the form of dividends. These payments can be in cash, additional shares of stock, or property. Dividends are typically declared and paid out at the discretion of the corporation’s board of directors.
How can an individual become a stockholder?
An individual can become a stockholder by purchasing shares of a company through a brokerage account. Shares can be bought during an initial public offering (IPO) or on the secondary market, such as stock exchanges.
What is the role of a proxy in stockholder voting?
A proxy is an authorization that allows one individual to act on behalf of a stockholder during a corporation’s shareholder meetings. This is commonly used when stockholders cannot attend the meetings in person.
Related Terms
Shareholder
An entity that owns one or more shares in a corporation. Shareholders are essentially the same as stockholders.
Equity
Equity represents ownership in a corporation and is manifested through shares of stock. Equity can appreciate or depreciate based on the corporation’s performance.
Dividends
A portion of the corporation’s earnings distributed to stockholders. Dividends can be paid in cash, additional stock, or property.
Initial Public Offering (IPO)
The process by which a private corporation offers its shares to the public for the first time. An IPO allows a company to raise capital from public investors.
Proxy Voting
The means by which stockholders can vote on corporate matters without being physically present at the shareholders’ meeting. Proxies can be granted to others to vote on behalf of the stockholder.
Online References
Suggested Books for Further Studies
- “The Intelligent Investor” by Benjamin Graham
- “Common Stocks and Uncommon Profits” by Philip Fisher
- “One Up On Wall Street” by Peter Lynch
- “Security Analysis” by Benjamin Graham and David L. Dodd
Accounting Basics: “Stockholders” Fundamentals Quiz
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