ContractsCounsel Logo


Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,473 reviews
Home Blog Shareholders

Jump to Section

Need to form a C Corporation?

Create a free project posting

Shareholders are the people, companies, or entities possessing shares or stocks in an entity and are considered the owners or equity holders of the company. In addition, shareholders play a fundamental part in corporate governance and decision-making procedures. They have specific rights, including voting privileges on important matters at the company's annual general meetings (AGMs), such as appointing the board of directors and key corporate decisions. They also have the right to receive a stake in the organizational profits, generally allocated based on the number of shares held. This blog post will discuss the rights and responsibilities of shareholders and more.

Fundamental Rights of Shareholders

Shareholder rights are fundamental in corporate governance, empowering investors and fostering company accountability. Through the responsible exercise of their voting rights, shareholders possess the ability to shape crucial decisions and exert influence over the company's trajectory. The availability of pertinent information enables shareholders to make well-informed investment choices while holding management accountable for their decisions.

Additionally, dividend rights grant shareholders the opportunity to partake in the company's financial achievements, while preemptive rights safeguard their ownership stakes. Moreover, the right to pursue legal action offers shareholders a means to seek redress for corporate misconduct, and the capability to evaluate financial records and documents ensures transparency, eventually protecting shareholder interests. Familiarity with and active exercise of these rights is essential for shareholders to protect their investments and effectively engage in the governance of their invested companies.

Below are the key rights of shareholders.

  • Voting Rights: One of the primary rights of shareholders is the freedom to vote. Shareholders can select the committee of directors, who are accountable for making vital decisions on behalf of the organization. Each share generally holds one vote, although some organizations may have multiple share categories with distinct voting rights. Shareholders can cast their votes individually or by proxy, allowing them to impact important matters such as acquisitions, mergers, and the appointment of key administrators.
  • Information Rights: Shareholders hold the privilege to access appropriate details about the organization's functions, financial performance, and strategic objectives. This right ensures transparency and allows shareholders to make informed choices. Businesses are obligated to offer periodic financial statements, including yearly and quarterly reports and other disclosures mandated by regulatory panels. Shareholders can also request additional details through the appropriate mediums, allowing them to scrutinize the organization's performance and hold management responsible.
  • Dividend Rights: Shareholders have the ownership to obtain a portion of the organization's earnings in the form of dividends. Dividends are generally allocated on a pro-rata basis, indicating that shareholders obtain a dividend amount proportional to their ownership claim. Nevertheless, dividends are not guaranteed and rely on the business's financial performance and management's discretion. By exercising this privilege, shareholders can enjoy returns on their investments and share in the organization's success.
  • Preemptive Rights: Preemptive rights allow existing shareholders to maintain their proportional rights in the business when new shares are allocated. This right guarantees that shareholders are not diluted and helps safeguard their investment worth. If the business chooses to allocate extra shares, shareholders have the opportunity to buy new shares before they are delivered to external investors. By exercising their preemptive privileges, shareholders can maintain their ownership share and avoid possible dilution of their stake.
  • Right to Sue and Class Action: Shareholders can take legal action against the organization or its leadership if they think their rights have been infringed or they have faced economic damage due to corporate misconduct. Shareholders can register separate cases or join forces in class action suits to seek payment for damages. This right acts as a strong barrier against deceitful practices, as it holds the administration accountable and safeguards the interests of shareholders.
  • Right to Inspect Financial Books and Records: Shareholders have the privilege to review the organization's books and records to confirm the accuracy of economic statements and assess the overall organizational financial health. This right enables shareholders to monitor the company's compliance with relevant regulations and laws and to determine possible conflicts of interest or mismanagement. By exercising this right, shareholders can guarantee transparency and foster good governance within the company.

Types of Shareholders

Shareholders come in different forms and have distinct rights and obligations. Some common types of shareholders are as follows:

  • Individual Shareholders: Individual shareholders comprise a diverse group of people who own different privileges and obligations as shareholders in an organization. These people vary from small-scale investors to wealthy people with substantial investments. They invest in businesses for various reasons, such as possible returns, dividends, or a desire to own a stake in a specific domain. Individual shareholders generally carry voting rights during the organization's general meetings, allowing them to participate in decision-making strategies.
  • Institutional Shareholders: Institutional shareholders comprise companies that invest considerable amounts of funds across numerous organizations. This classification contains insurance companies, pension funds, hedge funds, mutual funds, and investment institutions. These entities collect funds from different personal investors and assign them to various securities, including shares. Due to their substantial ownership stakes, institutional shareholders often exert higher power and actively engage in corporate governance issues. They participate in voting processes for board members and proposed resolutions, among other actions.
  • Promoter Shareholders: Promoter shareholders are people or companies accountable for establishing a company. They generally encompass entrepreneurs, founders, or initial investors who play a fundamental role in promoting the organization's formation. Promoter shareholders are involved in the initial stages of a business's growth and expansion and may hold considerable shares. Their individual financial well-being is directly associated with the company's, making them highly interested in its performance.
  • Minority Shareholders: Unlike majority shareholders, minority shareholders possess less than 50% of an organization's shares. While their ability to impact decisions directly may be limited, they still have rights and protections. Minority shareholders have the entitlement to obtain dividends, participate in general meetings, and exercise their voting rights on certain matters, such as transactions or amendments to the company's constitution. Regulations and corporate laws aim to safeguard minority shareholders against unfair treatment or oppression by majority shareholders.
  • Preferred Shareholders: Preferred shareholders enjoy distinct rights and privileges compared to common shareholders. These shareholders typically receive a fixed dividend rate and are entitled to dividends before common shareholders. Moreover, preferred shares are commonly issued to investors seeking a stable income stream rather than substantial voting power.
Meet some lawyers on our platform

Ryenne S.

430 projects on CC
View Profile

James H.

2 projects on CC
View Profile

Sara S.

38 projects on CC
View Profile

Zachary J.

180 projects on CC
View Profile

Key Terms for Shareholders

  • Proxy Voting: The process of authorizing someone to vote on behalf of a shareholder at a company's meeting.
  • Stockholders' Equity: It is the residual interest in an organization’s assets after deducting liabilities, representing shareholders' claims on the company.
  • Voting Rights: Voting rights are shareholders' entitlement to vote on important matters concerning the company's operations and governance.
  • Shareholder Activism: The active involvement of shareholders in influencing corporate decisions to drive change or protect their interests.
  • Stock Buybacks: When a company repurchases its own shares from shareholders, reducing the total number of outstanding shares.
  • Earnings per Share (EPS): It is a financial metric indicating a company's profitability per outstanding share.
  • Shareholder Value: The enhancement of a company's worth and profitability for the benefit of its shareholders.
  • Shareholder Agreement: It is a legally binding contract among shareholders outlining their rights, responsibilities, and ownership terms.
  • Rights Issue: When a company offers additional shares to existing shareholders in proportion to their current holdings.

Final Thoughts on Shareholders

Shareholders are the owners of businesses, investing their funds and having a considerable impact on the management and direction of businesses. They possess fundamental rights and responsibilities that foster transparency, accountability, and sustainable growth. In addition, understanding shareholders' role is vital for corporations, investors, and the overall functioning of the capital markets.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.

Need to form a C Corporation?

Create a free project posting

Meet some of our Lawyers

Paul S. on ContractsCounsel
View Paul
5.0 (12)
Member Since:
August 4, 2020

Paul S.

Free Consultation
Cincinnati, OH
37 Yrs Experience
Licensed in CA, OH
Boston University

I focus my practice on startups and small to mid-size businesses, because they have unique needs that mid-size and large law firms aren't well-equipped to service. In addition to practicing law, I have started and run other businesses, and have an MBA in marketing from Indiana University. I combine my business experience with my legal expertise, to provide practical advice to my clients. I am licensed in Ohio and California, and I leverage the latest in technology to provide top quality legal services to a nationwide client-base. This enables me to serve my clients in a cost-effective manner that doesn't skimp on personal service.

Jane C. on ContractsCounsel
View Jane
4.9 (72)
Member Since:
October 9, 2020

Jane C.

Free Consultation
New York
18 Yrs Experience
Licensed in CT, DC, NY
Pace University School of Law

Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.

Daehoon P. on ContractsCounsel
View Daehoon
4.7 (94)
Member Since:
November 26, 2021

Daehoon P.

Corporate Lawyer
Free Consultation
New York, NY
8 Yrs Experience
Licensed in NY
American University Washington College of Law

Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.

Michael M. on ContractsCounsel
View Michael
5.0 (228)
Member Since:
September 10, 2022

Michael M.

Free Consultation
Los Angeles, CA
36 Yrs Experience
Licensed in CA

www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.

Spencer R. on ContractsCounsel
View Spencer
5.0 (2)
Member Since:
September 15, 2022

Spencer R.

Free Consultation
New York
27 Yrs Experience
Licensed in NY
Washington College of Law at American University

I am an experienced attorney working in New York specializing in executive compensation/severance arrangements, transactional real estate work, tax structuring and contracts.

Wendy C. on ContractsCounsel
View Wendy
Member Since:
September 12, 2022

Wendy C.

Free Consultation
24 Yrs Experience
Licensed in IL, WI
University of Wisconsin Madison

Business Advisor and Real Estate Consultant: Small boutique firm working to assist entrepreneurs, business start-ups, property investors, new home buyers, and distressed owners Wendy Calvert began her career as a corporate attorney focusing on complex commercial litigation, primarily in construction, property and casualty, and contractor liability. Through this experience, Wendy has managed and successfully litigated cases in Illinois and Wisconsin. In 2004, Wendy relocated to Illinois to work as an insurance litigation counsel and later as an executive sales consultant and insurance expert. Wendy now utilizes her skills as a contract negotiator, litigator, and sales consultant to negotiate real estate deals and help entrepreneurs create and grow the businesses of their dreams. EDUCATION Wendy earned her Juris Doctor in 1999 from the University of Wisconsin Madison. In 1989, Wendy graduated with a Bachelor of Arts in Business Administration and Communications from Marquette University.

Max L. on ContractsCounsel
View Max
Member Since:
September 19, 2022

Max L.

Free Consultation
Fort Lauderdale, Florida
17 Yrs Experience
Licensed in FL
The Benjamin N. Cardozo School of Law

Hi there. My practice focuses on several aspects of business law, including business entity formation and organizational documents, trademark and copyright, tax disputes, and contracts. I work with quite a few creative entrepreneurs, such as photographers, artists, and musicians.

Find the best lawyer for your project

Browse Lawyers Now
Learn About Contracts
See More Contracts
other helpful articles

Need to form a C Corporation?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city