A shareholder is a person or a corporation who holds the majority of shares in a company, by buying shares on the stock exchange. Dividends are paid out to shareholders when the company increases its stock value and profits. Shareholders don’t have to personally bear the obligations or debts of the company, but they are taking on a risk when they invest.
The types of shareholders that are part of a business can be bifurcated into two broad categories namely those who have common shares and those who have preferred shares. It is also possible for businesses to further divide these shares by class, with different rights being assigned to different classes of shares.
Employees are often granted common shares as a part of their compensation. They have voting rights in business matters and also receive dividends from the profits of the company. When they are deciding on the appropriateness of assets in a liquidation, they’re in the same category as preferred shareholders.
Preferred shareholders aren’t allowed to take part in management decisions. The dividend rate isn’t fixed and will vary depending on the financial health of the company at any particular year. In addition to this, they are paid before the common shares in a liquidation of the company. It is also possible for shareholders to enjoy various additional rights, including the right to receive a preferential dividend or a special dividend, or even no dividend at all.