When you buy shares of stocks from a company, you are automatically entitled to the rights and benefits that the shares provide. However, that doesn’t mean you get all the kinds of rights from the company. Here are some of the top shareholder rights you should know.
Voting Power
A common shareholder achieves some level of voting power on major issues. These issues include election of directors, proposals for big changes that can affect the company like liquidation or mergers.
The voting happens at the company’s annual shareholders meeting. If the shareholder, by any chance, cannot attend the meeting, he or she can vote by proxy or even mail their vote.
Part Ownership of the Company
For the case of preferred shareholders and bondholders, they get paid first in the event that the company goes out of business.
For the common shareholder, however, when the business is doing well, they get a piece of something that carries some value. In other words, they can a portion of the ownership of the company.
As the company thrives and reinvest in the business, the shareholders and the company get additional assets. The shareholder then enjoys better value for their shares as the stock price increases.
Transfer of Ownership
This right means that the shareholder can trade their stocks on an exchange. The right to transfer the stock ownership may sound mundane to some, but it’s important to remember that the stockholder may benefit from the liquidity that the exchange gives.
Liquidity refers to the degree at which the asset or security can be quickly bought or sold in the market without affecting the asset’s price.
Liquidity is also one of the crucial factors that distinguishes stocks from another investment such as commodities or real estate.
If you own a real estate property and you want to sell it, you may have to wait for months or even years to find a suitable buyer. It may take a while before you can convert the property into cold cash.
For the case of stocks, liquidity is not a problem. So, you can transfer your money into other places very quickly.
Dividend Payments
Apart from a claim on the company’s assets, investors also benefit from a claim on the profits that the company pays out. Usually, these payments come out in the form of dividends.
The management of the company practically has two ways to use the company’s profits. The first is that they can use the profit to reinvest back into the company. The second options is to pay the profits out in the form of dividends.
The investors usually do not decide the percentage of the profits that the company should pay out. The decision comes from the board of directors.
On the other hand, whenever a dividend is declared, common shareholders usually get to receive their shares.
Checking Corporate Books and Records
Public companies are required by regulation to release their financials in the form of annual reports. One annual report is for the Securities and Exchange Commission (SEC) and another annual report for their shareholders.
