What is a shareholder?
Shareholders are investors that buy partial ownership stakes in a company. These ownership stakes are called shares. Companies sell shares to raise money for their operations. If the company is successful, shareholders make a profit on their investment over time. If the company performs poorly, shareholders may see the value of their investment decrease. Shareholders can be people, companies, investment firms (of which there are many types) and even governments.
What do companies get from shareholders?
In a word: money. When a company sells shares, either directly to investors or through a stock exchange, it uses the money to fund new projects, pay off debts, or cover operating expenses like employee salaries. Sometimes shareholders provide more than just money, though. A shareholder known for being environmentally and socially responsible may help improve the reputation of a company in a controversial industry. Other shareholders may offer advice on running the company or hold a seat on its board of directors.
What do shareholders get out of their investments?
Shareholders make money in two basic ways. First, if a company performs well, it distributes a portion of its profits to shareholders in the form of payments called dividends. Second, if the value of a company’s shares increases over time, shareholders can sell them at a profit.
Shareholders also have certain rights. They get to vote on important company decisions — including electing members of the board of directors — at shareholder gatherings called annual or extraordinary general meetings. Shareholders are also entitled to certain information about a company that may not be public, such as a full register of the other shareholders. If a company goes out of business, shareholders can recoup some of their investment, but only after lenders and other debt investors have done so.
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