A shareholder is a person, or a company that holds a part-ownership of a company by purchasing shares in the market for shares. Dividends are paid to shareholders whenever the company improves its stock value or financial profits. Shareholders don’t have to personally bear the debts or liabilities of the company, however they take a risk when they invest.
The types of shareholders that are part of the business can be divided into two broad categories namely those who have common shares and those who hold preferred shares. Businesses can break them down further by class with different rights associated with each class of shares.
Employees are often granted common shares as part of their compensation. They are entitled to vote over business matters and receive dividends from the profits of the business. They are second in line to preference shareholders in terms of the rights to assets in the event of a liquidation of the business.
The preferred shareholders are not able to be part of management decisions. They also do not have a fixed rate of dividends, and the rate will change according to the profitability of the company in any given year. Additionally they are paid prior the common shares are paid out in the event of a liquidation of the company. Shareholders also have other rights like the right to receive a preference or special dividend, or no dividend.
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