A shareholder is a natural person or a legal entity (i.e. another company) that owns at least one share of a company. They may also be referred to as stockholders or equity holders. Some people may refer to them as owners of the company.
A company requires investment in the form of an injection of funds from shareholders. In return, shareholders are given shares and they can reap the benefits when the value of the company increases, thereby increasing the value of their shares. They can then sell their shares to realise the profits of their investment. The shareholders can also reap benefits in the form of dividends. If the company is profitable, it can distribute the profits in the form of dividends to the shareholders. Of course, if a company does poorly then the value of the company may fall and dividends may not be paid. Thus the shareholders can lose money in their investments. In the case of bankruptcy, the shareholders may lose all the money which they invested in the company. The debts of a company will not affect the personal assets of the shareholders.
The shareholder is not involved in the day to day running of the company. That is left to the directors. In fact, in most matters, the shareholders are not disturbed and in many cases only get involved once a year during the Annual General Meeting of the company. However, the shareholders still enjoy certain rights like the right to appoint and remove the board of directors and to vote on certain company matters. They are also entitled to inspect the company’s records and finances and can attend the annual general meetings whereby they can vote on matters like the reappointment of directors or the remuneration to the directors. There are instances whereby certain shareholders may also be the directors of the company.
There can be multiple classes of shares. In most cases, common shares will enable shareholders to vote on matters whereby preferred shares do not have voting rights. This may differ and there may be many more classes of shares which should be reflected in the company’s constitution.
If a single shareholder holds more than 50 per cent of a company’s outstanding shares, that person or entity is known as a majority shareholder. Otherwise, that person or entity would be known as a minority shareholder.
If a single shareholder holds more than 25 per cent of a company’s outstanding shares, that person or entity is known as a controller of the company.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
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