Shareholder

A shareholder (also stockholder) is an individual or institution, including a corporation, that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation‘s register of shareholders or members.[1] A beneficial shareholder is the person that has the economic benefit of ownership of the shares, while a nominee shareholder is the person who is on the corporation’s register as the owner while being in fact acting for the benefit and at the direction of the beneficiary, whether disclosed or not.

The corporation is not required to record the beneficial ownership of a shareholding, only the owner as recorded on the register. When more than one person are on the record as owners of a shareholding, the first one on the record is taken to have control of the shareholding, and all correspondence and communication by the company will be with that person. Shareholders of a corporation are legally separate from the corporation itself. They are generally not liable for the debts of the corporation; and the shareholders' liability for company debts are said to be limited to the unpaid share price, unless if a shareholder has offered guarantees. The influence of a shareholder on the business is determined by the shareholding percentage owned.

Description

Shareholders may be granted special privileges depending on a share class. The board of directors of a corporation generally governs a corporation for the benefit of shareholders.

Subject to the applicable laws, the rules of the corporation and any shareholders’ agreement, shareholders may have the right:

  • to sell their shares.[2]
  • to vote on the directors nominated by the board of directors.[2]
  • to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions.[2]
  • to vote on mergers and changes to the corporate charter.[2]
  • to dividends if they are declared.[2]
  • to access certain information; for publicly-traded companies, this information is normally publicly available.[2]
  • to sue the company for violation of fiduciary duty.[2]
  • to purchase new shares issued by the company.
  • to what assets remain after a liquidation.

Shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, employees, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation.

Shareholders may have acquired their shares in the primary market by subscribing to the IPOs and thus provided capital to the corporation. However, most shareholders acquire shares in the secondary market and provided no capital directly to the corporation.

Types of shareholders

Primarily, there are two types of shareholders.

Common Shareholders

An individual or an institution can be a common shareholder who owns common shares within a company. This type of shareholding is more common. Common shareholders have the right to influence decisions concerning the company and can file class action lawsuits in case any wrongdoing happens.[3]

Preferred Shareholders

A preferred shareholder is rare. In this, the shareholder is paid a fixed sum of dividend even before the common shareholders and they have no voting rights within the company.

See also

References

  1. ^ Fontinelle, Amy (26 November 2003). "Shareholder". investopedia.com.
  2. ^ a b c d e f g Velasco, Julian (2006). "The Fundamental Rights of the Shareholder" (PDF). UC Davis L. Rev. 40: 407–467. Retrieved 16 April 2018.
  3. ^ "Shareholder - Definition, Roles, and Types of Shareholders". Corporate Finance Institute. Retrieved 2019-02-19.
Activist shareholder

An activist shareholder is a shareholder that uses an equity stake in a corporation to put pressure on its management. The goals of activist shareholders range from financial (increase of shareholder value through changes in corporate policy, financing structure, cost cutting, etc.) to non-financial (disinvestment from particular countries, adoption of environmentally friendly policies, etc.). According to research firm Activist Insight, a total of 922 listed companies globally were publicly subjected to activist demands in 2018, up from 856 in 2017.A fairly small stake (less than 10% of outstanding shares) may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking.

The financial form of shareholder activism has gained popularity as management compensation at publicly traded companies and cash balances on corporate balance sheets have risen. Not only are the aggregate dollars invested in the activist asset class continuing to grow, but activists are also generating significant positive attention from mainstream media by taking more sophisticated approaches to identifying their platforms and running their campaigns. Once derided as corporate raiders, shareholder activists are now the recipients of admiration for sparking change in corporate boardrooms, leading to corporate boards developing best practices for responding to shareholder activism. Activists increasingly are transitioning from outside agitators to influential insiders. In fact, some well-established activists were able to secure board seats without running a proxy contest in 2015.Shareholder activists are making their mark on M&A activity as well – a 2015 survey of corporate development leaders found that 60% of respondents saw shareholder activism affecting transaction activity in their industry. Increasingly, however, the non-financial form of shareholder activism is affecting companies in a range of sectors. Shareholders, often with a comparatively small stake in a company, are seeking to influence the company's environmental and social performance.Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, litigation, and negotiations with management. Daniel Loeb, head of Third Point Management, is notable for his use of sharply written letters directed towards the CEOs of his target companies.

Some of the recent activist investment funds include: California Public Employees' Retirement System (CalPERS), Icahn Management LP, Santa Monica Partners Opportunity Fund LP, State Board of Administration of Florida (SBA), and Relational Investors, LLC.

Due to the Internet, smaller shareholders have also gained an outlet to voice their opinions. In 2005, small MCI Inc. shareholders created an online petition to protest the MCI/Verizon merger.

Alcon

Alcon is a global medical company specializing in eye care products with headquarters in Fort Worth, Texas, United States, and incorporated in Fribourg, Switzerland. Alcon's American headquarters are located in Fort Worth, Texas. Alcon is a subsidiary of Novartis although the company announced intention to seek shareholder approval for 100% spinoff of Alcon eye care devices business in order to create an independent company in 2019.

Common stock

Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently in other parts of the world; "common stock" being primarily used in the United States. They are known as Equity shares or Ordinary shares in the UK and other Commonwealth realms. This type of share gives the stockholder the right to share in the profits of the company, and to vote on matters of corporate policy and the composition of the members of the board of directors.

It is called "common" to distinguish it from preferred stock. If both types of stock exist, common/equity stockholders usually cannot be paid dividends until all preferred/preference stock dividends are paid in full; it is possible to have common stock that has dividends that are paid alongside the preferred stock.

In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors (including employees), and preferred stockholders are paid. As such, common stock investors often receive nothing after a liquidation bankruptcy Chapter 7.

Common stockholders can also earn money through capital appreciation. Common shares may perform better than preferred shares or bonds over time, in part to accommodate the increased risk.

Controlling interest

A controlling interest is an ownership interest in a corporation with enough voting stock shares to prevail in any stockholders' motion. A majority of voting shares (over 50%) is always a controlling interest. When a party holds less than the majority of the voting shares, other present circumstances can be considered to determine whether that party is still considered to hold a controlling ownership interest.In the United States, Delaware corporations have a 2/3 vote requirement for a motion to pass. In theory, this could mean that a controlling interest would have to be over one third of the voting shares.

Drag-along right

Drag-along right (DAR) is a legal concept in corporate law.

Under the concept, if the majority shareholder(s) of an entity sells their stake, the prospective owner(s) have the right to force the remaining minority shareholders to join the deal. However, the owner must usually offer the same terms and conditions to the minority shareholders as to the majority shareholder(s). Drag-along rights are fairly standard terms in a stock purchase agreement.

This right protects majority shareholders (allowing them to sell to an owner desiring total control of the entity, without being encumbered by holdout investors) but also protects minority shareholders (who can sell their investment on the same terms and conditions as the majority shareholder). This differs from a tag-along right, which also allows minority shareholders to sell on the same terms and conditions (and requires the new owner to offer them), but does not require them to sell.

Drag-along rights typically terminate upon an initial public offering.

Equity (finance)

In accounting, equity (or owner's equity) is the difference between the value of the assets and the value of the liabilities of something owned. It is governed by the following equation:

For example, if someone owns a car worth $15,000 (an asset), but owes $5,000 on a loan against that car (a liability), the car represents $10,000 of equity. Equity can be negative if liabilities exceed assets. Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the equity of a company as divided among shareholders of common or preferred stock. Negative shareholders' equity is often referred to as a shareholders' deficit.

Alternatively, equity can also refer to a corporation's share capital (capital stock in American English). The value of the share capital depends on the corporation's future economic prospects. For a company in liquidation proceedings, the equity is that which remains after all liabilities have been paid.

Mutual fund

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses.

Primary structures of mutual funds include open-end funds, unit investment trusts, and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange. Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index, or actively managed funds. Hedge funds are not mutual funds; hedge funds cannot be sold to the general public and are subject to different government regulations.

Partnership

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

S corporation

An S corporation, for United States federal income tax , is a closely held corporation (or, in some cases, a limited liability company (LLC) or a partnership) that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

Share (finance)

In financial markets, a share is a unit used as mutual funds, limited partnerships, and real estate investment trusts. The owner of shares in the corporation/company is a shareholder (or stockholder) of the corporation. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares.

The income received from the ownership of shares is a dividend. The process of purchasing and selling shares often involves going through a stockbroker as a middle man.

There are different types of shares such as equity shares, preference shares, bonus shares, right shares, employees stock option plans and sweat equity shares.

Shareholder Meeting

"Shareholder Meeting" is the 11th episode of the sixth season of the U.S. comedy series The Office and the show's 111th episode overall. It was written by Justin Spitzer and directed by Charles McDougall, and originally aired in the United States on NBC on November 19, 2009.

The series—presented as if it were a real documentary—depicts the everyday lives of office employees in the Scranton, Pennsylvania, branch of the fictional Dunder Mifflin Paper Company. In this episode, Michael heads to a shareholder meeting in New York, and brings Andy, Dwight, and Oscar with him. Michael is shocked when he and other higher members of the company are booed onstage and tries to improve the situation, but instead worsens it. Meanwhile, Jim struggles to get Ryan to do some work.

Shareholder loan

Shareholder loan is a debt-like form of financing provided by shareholders. Usually, it is the most junior debt in the company's debt portfolio, and since this loan belongs to shareholders it should be treated as equity. Maturity of shareholder loans is long with low or deferred interest payments. Sometimes, shareholder loan is confused with the inverse, a loan from a company that is extended to its shareholders.

Shareholder rights plan

A shareholder rights plan, colloquially known as a "poison pill", is a type of defensive tactic used by a corporation's board of directors against a takeover. Typically, such a plan gives shareholders the right to buy more shares at a discount if one shareholder buys a certain percentage or more of the company's shares. The plan could be triggered, for instance, if any one shareholder buys 20% of the company's shares, at which point every shareholder (except the one who possesses 20%) will have the right to buy a new issue of shares at a discount. If every other shareholder is able to buy more shares at a discount, such purchases would dilute the bidder's interest, and the cost of the bid would rise substantially. Knowing that such a plan could be activated, the bidder could be disinclined to take over the corporation without the board's approval, and would first negotiate with the board in order to revoke the plan.The plan can be issued by the board of directors as an "option" or a "warrant" attached to existing shares, and only be revoked at the discretion of the board.

In the field of mergers and acquisitions, shareholder rights plans were devised in the early 1980s as a way to prevent takeover bidders from negotiating a price for sale of shares directly with shareholders, and instead forcing the bidder to negotiate with the board.

Shareholder value

Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders. It became popular during the 1980s, and is particularly associated with former CEO of General Electric, Jack Welch.

The term can be used to refer to:

The market capitalization of a company

The concept that the primary goal for a company is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the stock price to increase

The more specific concept that planned actions by management and the returns to shareholders should outperform certain bench-marks such as the cost of capital concept. In essence, the idea that shareholders' money should be used to earn a higher return than they could earn themselves by investing in other assets having the same amount of risk. The term in this sense was introduced by Alfred Rappaport in 1986.

Social responsibility

Social responsibility is an ethical framework and suggests that an entity, be it an organization or individual, has an obligation to act for the benefit of society at large. Social responsibility is a duty every individual has to perform so as to maintain a balance between the economy and the ecosystems. A trade-off may exist between economic development, in the material sense, and the welfare of the society and environment, though this has been challenged by many reports over the past decade. Social responsibility means sustaining the equilibrium between the two. It pertains not only to business organizations but also to everyone whose any action impacts the environment. This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by performing activities that directly advance social goals. Social responsibility must be intergenerational since the actions of one generation have consequences on those following.Businesses can use ethical decision making to secure their businesses by making decisions that allow for government agencies to minimize their involvement with the corporation. For instance if a company follows the United States Environmental Protection Agency (EPA) guidelines for emissions on dangerous pollutants and even goes an extra step to get involved in the community and address those concerns that the public might have; they would be less likely to have the EPA investigate them for environmental concerns. "A significant element of current thinking about privacy, however, stresses "self-regulation" rather than market or government mechanisms for protecting personal information". According to some experts, most rules and regulations are formed due to public outcry, which threatens profit maximization and therefore the well-being of the shareholder, and that if there is not an outcry there often will be limited regulation.Some critics argue that corporate social responsibility (CSR) distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing, or "greenwashing"; others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful corporations though there is no systematic evidence to support these criticisms. A significant number of studies have shown no negative influence on shareholder results from CSR but rather a slightly negative correlation with improved shareholder returns.

Socially responsible investing

Socially responsible investing (SRI), or social investment, also known as sustainable, socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change.

Recently, it has also become known as "sustainable investing" or "responsible investing". There is also a subset of SRI known as "impact investing", devoted to the conscious creation of social impact through investment.

In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity. Some avoid businesses involved in alcohol, tobacco, fast food, gambling, pornography, weapons, contraception/abortifacients/abortion, fossil fuel production or the military. The areas of concern recognized by the SRI practitioners are sometimes summarized under the heading of ESG issues: environment, social justice, and corporate governance.

"Socially responsible investing" is one of several related concepts and approaches that influence and, in some cases, govern how asset managers invest portfolios. The term "socially responsible investing" sometimes narrowly refers to practices that seek to avoid harm by screening companies included in an investment portfolio. However, the term is also used more broadly to include more proactive practices such as impact investing, shareholder advocacy and community investing. According to investor Amy Domini, shareholder advocacy and community investing are pillars of socially responsible investing, while doing only negative screening is inadequate.

Stock

The stock (also capital stock) of a corporation is all of the shares into which ownership of the corporation is divided. In American English, the shares are commonly known as "stocks." A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets (after discharge of all senior claims such as secured and unsecured debt), or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

Stock can be bought and sold privately or on stock exchanges, and such transactions are typically heavily regulated by governments to prevent fraud, protect investors, and benefit the larger economy. As new shares are issued by a company, the ownership and rights of existing shareholders are diluted in return for cash to sustain or grow the business. Companies can also buy back stock, which often lets investors recoup the initial investment plus capital gains from subsequent rises in stock price. Stock options, issued by many companies as part of employee compensation, do not represent ownership, but represent the right to buy ownership at a future time at a specified price. This would represent a windfall to the employees if the option is exercised when the market price is higher than the promised price, since if they immediately sold the stock they would keep the difference (minus taxes).

Tag-along right

Tag-along right (TAR) is a legal concept in corporate law.

Under the concept, if the majority shareholder(s) of an entity sells their stake, the remaining minority shareholders have the right to join the deal and to sell their shares at the same terms and conditions as the majority shareholder(s), and the new owner must purchase those interests as well.

This right protects minority shareholders from being potentially forced to sell their shares for less than the majority shareholder(s) (as, after the deal, they likely would have no ability to outvote the new owner(s) who would have majority control). Tag-along rights are fairly standard terms in shareholders agreements.

The concept differs from the drag-along right, in that under the latter the minority shareholders must sell their interests (though they also obtain the same terms and conditions as the majority shareholder).

Transurban

Transurban is road operator company that manages and develops urban toll road networks in Australia and North America. It was founded in 1996 and is listed on the Australian Securities Exchange (ASX).

In Australia, Transurban is the full owner of CityLink in Melbourne, which connects three of the city's major freeways; and has stakes in six tolled motorways in Sydney, and, in six of the six Linkt network tolled motorways in Brisbane.

In the United States, Transurban has ownership interests in the 495 Express Lanes on a section of the Capital Beltway around Washington, DC. It also has an interest in the connecting 95 Express Lanes project on Interstate 95.

Transurban was included on the Dow Jones Sustainability Index (DJSI) World List from 2006 to 2010 and on the DJSI Asia Pacific List from 2011 to 2015.

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