A shareholder is a part-owner of a corporation who acquires his interest by contributing capital towards the formation of the company or by buying its shares. Shareholders can be people or other corporations, since these are independent legal entities. Ownership of the corporation entitles the shareholder to specific rights. However, the rights of a shareholder may be subject to the proportion of ownership such that the person who owns the majority of shares can exercise greater powers than the minority. Shareholders also have responsibilities that arise from their ownership of the corporation.
The right to vote is a shareholder's most essential entitlement. Corporations are required to convene annual general meetings at which shareholders can be apprised of the company’s progress. Shareholders can attend these meetings in person, but if they prefer, they may be represented through properly appointed proxies so that they are not deprived of their right to participate. During the meetings, shareholders propose and vote on various issues calculated to facilitate the progress of the corporation. For example, shareholders vote on whether to distribute or retain profits in the company and also approve the purchase of assets.
The management of a corporation ensures that proper books of accounts and records are maintained so that shareholders can inspect them to get an accurate picture of the position of the business. Shareholders have a right to be presented with audited financial statements during the annual general meeting; these statements are thereafter filed with the company's registry, where they can be readily accessed. Corporations also prepare annual reports that cover every aspect of the business to give the shareholders comprehensive information that they can use to make decisions about the future of the company.
It is the responsibility of the shareholders to appoint corporation officers to help in the running of the business. Shareholders elect directors during annual general meetings; these directors constitute a board that is charged with the responsibility for the overall management of the company. The shareholders also appoint external auditors who examine the corporation’s books of accounts and deliver audited statements at the end of each financial year.
Shareholders have a responsibility to oversee the proper management of the company. They have a duty to call the organizational management and board of directors to account for the performance of the company. Shareholders may ask questions, seek clarifications and even raise objections to the actions and decisions of the management. Shareholders usually address management during the annual general meeting but they can convene extraordinary and special meetings to discuss specific agenda relating to the management of the company.
- Noel Hendrickson/Photodisc/Getty Images