What Are Business Stockholders?
- Stockholder rights are determined by a combination of state law, company bylaws and charter of the company issuing stock and the class of owned stock. A shareholder essentially owns a portion of the capital and goodwill of the company but has no claim on any specific portion of it. As such, the stockholder has a right to a proportional share in the profits, paid in the form of a dividend. Stockholders do not have liability for the debts, obligations, or actions of the corporation, beyond the potential loss of investment should it fail.
- A dividend is a distribution of a portion of profits to a company's owners. Dividends are determined by the company's board of directors, and are normally paid quarterly. In the United States, at the time of publication, dividends are taxed at the same rate as long-term capital gains, which is 15 percent. Many stockholders choose to have their dividends immediately re-invested in additional stock of the company. Dividends are paid proportionally to all stockholders based on ownership interest.
- Stockholders have basic rights to influence the decisions made on behalf of the corporation. Owners of common stock can participate in general meetings, primarily for voting for directors. A number of other issues may involve shareholder votes, including changes in the articles of incorporation, approval or disapproval of a merger, sale of significant assets and changes to the bylaws of the corporation. Stockholders also have the right to initiate litigation against the corporation to protect ownership rights.
- Stock ownership is divided between common and preferred stock. Common stock is the lowest level of stock ownership, with claims to assets and earning subordinate to preferred share owners. In practice, hierarchy of claims is most important in the case of insolvency, when any remaining assets are divided among creditors and owners. Preferred stockholders generally do not have voting rights. However, preferred stockholders often receive higher dividend payments than common stockholders.