Shareholders

Definition

Shareholders are individuals or entities that own shares in a corporation, giving them partial ownership and a claim on the company's assets and earnings. They play a crucial role in corporate governance as they have the power to influence major business decisions, vote on corporate matters, and hold the management accountable for their actions.

5 Must Know Facts For Your Next Test

1. Shareholders can be categorized as common shareholders, who have voting rights and the potential for dividends, and preferred shareholders, who generally receive fixed dividends but do not have voting rights.
2. In corporate governance, shareholders exercise their rights through annual meetings where they can vote on key issues like board member elections and executive compensation.
3. Activist shareholders often push for changes in management or corporate policies to increase shareholder value, sometimes leading to significant shifts in company strategy.
4. Shareholder rights plans, also known as poison pills, are defensive measures used by companies to deter hostile takeovers by making it less attractive for potential acquirers.
5. Legal frameworks around shareholder rights vary by jurisdiction but generally include protections against unfair treatment and provide mechanisms for addressing grievances.

Review Questions

• How do shareholders influence corporate governance and decision-making within a company?
  • Shareholders influence corporate governance primarily through their voting rights during annual meetings and special meetings. They can vote on important matters such as electing board members, approving mergers or acquisitions, and determining executive compensation. By exercising their voting power, shareholders can hold management accountable and advocate for changes that align with their interests, thereby directly impacting the direction of the company.
• Discuss the significance of shareholder rights plans in protecting corporations from hostile takeovers and how this relates to shareholder interests.
  • Shareholder rights plans, commonly referred to as poison pills, serve as a defense mechanism against hostile takeovers by making it more difficult for an acquirer to gain control without negotiating with the board. These plans typically allow existing shareholders to purchase additional shares at a discount if an unwanted takeover bid occurs. While intended to protect the company and its current shareholders, these plans can sometimes lead to tensions between management and shareholders regarding control and decision-making power.
• Evaluate the impact of major corporate scandals on shareholder trust and the importance of ethical considerations in corporate governance.
  • Major corporate scandals, such as those involving Enron and WorldCom, severely undermine shareholder trust as they expose unethical practices within companies. These events highlight the critical need for robust corporate governance structures that prioritize transparency and accountability. Shareholders increasingly demand ethical behavior from management and seek to engage more actively in governance processes to ensure their investments are safeguarded. This shift underscores the relationship between ethical considerations in stakeholder management and the long-term success of corporations.

Related terms

Dividends: Dividends are payments made by a corporation to its shareholders, typically from profits, as a way to distribute earnings.

Proxy Voting: Proxy voting allows shareholders to delegate their voting rights to another party, often used when they cannot attend meetings in person.

Equity Financing: Equity financing refers to raising capital by selling shares of stock in exchange for cash, providing funds for the company while diluting ownership.