Shareholder

What is a shareholder?

Each company is owned by its shareholders. Every shareholder holds a certain amount of a company’s shares. The more shares a shareholder owns, the more of that company belongs to them. Shareholders can either be individual investors, or other limited liability companies and organisations. These individuals or organisations purchase shares to make a profit through dividends.

Dividends are a part of the company's profits which they pay to shareholders depending on the number of shares they own. The more shares you own in a company, the more of the company's profits you will receive in the form of dividends.

Shares can also be traded. You could buy a share in a company, receive dividend payments, and later on sell the same share you bought previously for a higher price. The price of your share is dependent on how well the company is doing financially.

Shareholders' agreement

A shareholders' agreement is an agreement among shareholders or the members of a company.

The shareholders' agreement explains the different processes, outcomes, and rights shareholders have within the company. Typically, a shareholders' agreement consists of:

• The shareholders' rights and obligations.

• How the sale of shares is regulated within the company.

• How the company will pay dividends.

• How the company will plan on growing in the future.

• Describes the management of the company or how the company is going to be run.

• Describes how decisions are made and how they will be made in the future.

• Describes how the company is going to raise funds.

Shareholder implications

Shareholders can influence the decision-making process of a company. Most types of shares, especially if you own a lot of them, will grant you decision-making rights in a company. This decision-making right is called the shareholder's voting rights. By buying more shares, you will have more influence over the outcome of the decision.

Advantages and disadvantages of being a shareholder

As we know, setting up a company can be risky. In the same way, buying shares in a company comes with its own sets of risks. However, buying shares and investing in a company, when done correctly, can be a very rewarding process.

Advantages of shareholders

Shareholders usually invest in a business for monetary purposes. This means that you buy shares in a company, and hopefully, the company makes a lot of profit that they can pay you in the form of dividends. The more profit the company makes, the more you will likely receive dividend payments.

Another advantage of buying shares is to trade these shares. Some shareholders invest in hopes of making large returns. One of the ways in which a shareholder could do this is by buying shares at a lower price point and later on selling them at a higher price. Usually, riskier companies will offer higher returns.

Disadvantages of shareholders

There is always a risk that comes with buying shares. If the company makes bad financial decisions or hires managers and executives that are not aligned with the mission of the company, the price of its shares will fall.

There are also external influences, like the economy as a whole, that could impact a company's share prices. For instance, during a financial crisis, no matter how well a company is being managed, share prices will most likely decrease. Because of a negative economic climate, companies are also likely to make lower profits than expected. As a result, the dividends shareholders receive will also be lower than expected.