Legal Dictionary

shareholder

Legal Definition of shareholder

Alternative forms


Definition of shareholder

Noun

shareholder (plural shareholders)

  1. One who owns shares of stock.

    Shareholders are the real owners of a publicly traded business, but management runs it.

Further reading

A shareholder or 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 own the stock, but not the corporation itself (Fama 1980).

Stockholders are granted special privileges depending on the class of stock. These rights may include:

  • The right to sell their shares,
  • The right to vote on the directors nominated by the board,
  • The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions,
  • The right to dividends if they are declared,
  • The right to purchase new shares issued by the company, and
  • The right to what assets remain after a liquidation.

Stockholders or 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, labor, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation.

Shareholders in the primary market who buy IPOs provide capital to corporations; however, the vast majority of shareholders are in the secondary market and provide no capital directly to the corporation.

Therefore, contrary to popular opinion, shareholders of American public corporations are not the (1) owners of the corporation, (2) the claimants of the profit, nor (3) investors, as in the contributors of capital.

References

  1. Berle, Adolf. 1962. Modern Function of the Corporate System. Columbia Law Review,
  2. Stout, Lynn. Bad and Not-So-Bad Arguments for Shareholder Primacy, 75 S. Cal. L. Rev. 1189 (2002)

References:

  1. Wiktionary. Published under the Creative Commons Attribution/Share-Alike License.



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