Wednesday, November 30, 2011

What are Shareholders?

Shareholders:  They are the owners of the corporation.

The Shareholders possess the right to 1) Elect directors 2) Vote on fundamental transactions like mergers, sale of assets, dissolutions, and amendments of articles of incorporation.
  • They have residual claim on corporations assets if it is dissolved (“liquidation right”). Once creditors have been paid in a liquidation, the shareholders can get the remaining assets.
  • They have a right to receive a pro rata share of corporate profits (dividends) if authorized by board of directors. This is not absolute, they have to bargain for this right. Preferred Shares get dividends first.
  • Control rights are weighted by the size of your investment. This is different than a general partnership where all partners vote equally. 
  • Other than electing the board, they have no management of conduct rights. Shareholder do not have rights to act on behalf of the corporation. They are passive investors.

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