A stockholder is also known as a shareholder of a company or an individual that owns at least one share of an organisation’s capital stock. Stockholders are mostly the owner of the company and generally acquire the company’s accomplishment in the form of increased stock valuation. However, if the company stock price drops the stockholder may have to bear the losses too.
Unlike the owner of the company, corporate shareholders are not responsible for the company’s debt or any other financial obligations and do not manage the operations.
From a realistic view, in the stockholder theory, management is committed to advance the business plan and increase the value of the business for the privilege of the stockholders by utilising any means short of ‘deception or fraud.’
Few rights that stockholder enjoy and is defined by law are:
- They are allowed to audit the company’s book and records
- They can sue the company in terms of breach of the law of the directors and officers
- Have the right to vote on the major corporate matters
- Right to receive the dividend that the company declares
- Can attend the company’s annual meeting
- To receive a proportionate share if the company liquidates the assets
All the above rights are assigned to both common and preferred stockholders and are mentioned in every company’s governed policy.
Students can also refer to Share Capital of a Company – What is Share Capital Account?
Types of Stockholder
There are two types of stockholders in most companies:
- Common Stockholder: Most of the stockholder are common stockholders because it is cheaper and easily available than preferred stocks. It is flexible and generates more profit. Common stockholders have voting rights on important matters like merging of an organization with another.
- Preferred stockholder: Here, the stockholders have fixed dividend, mostly larger than the common stockholder, and are paid before common stockholders. The stockholders do not have the voting right. Preferred stockholder is usually for those investors who are looking to generate annual investment income.
The above mentioned is the concept, that is elucidated in detail about ‘What is a Stockholder?’ for the Commerce students. To know more, stay tuned to BYJU’S.
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