The Types of Shareholders in a Business

A shareholder is an individual or a corporation that holds part ownership in a company through the purchase of shares on the stock exchange. Dividends are paid out to shareholders when the company grows its stock price and financial profits. Shareholders aren’t personally liable for the liabilities and debts of the business, but they do take on risk when they invest their money into it.

The types of shareholders that are part of a business can be bifurcated into two broad categories: those who own common shares as well as those who own preferred shares. Companies can also break them down further into class, with different rights attached to each class of shares.

Employees are often granted common shares as part of their compensation. They have voting rights over business issues and receive dividends from the profits of the company. They are ranked after preference shareholders in terms of the right to assets in the event of a liquidation of a business.

Preferred shareholders, on the other hand are not able to participate in the management decisions of the company. They also do not receive an annual fixed dividend rate and the rate can change depending on the profit situation of the company in any particular year. They also get paid prior to the common share in a company’s liquidation. Shareholders may also have other rights like the right to receive a preferred or special dividend, or no dividend.

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