Whether you own stock in a business or you run a business that has shareholders, understanding the rights of a stock owner can help you better protect your interests.
Common shareholders in a company can:
Exercise financial claims on the company
Your stock comes with a certain claim on the company — which is what gives it value and increases your holdings over time.
Transfer their ownership rights
Part of your stock’s value lies in your ability to trade it or sell it. While not as liquid as cash, stocks are a flexible investment that can be moved around — or cashed in — fairly quickly.
Vote on important issues
Whether you exercise this privilege by mail or proxy, you do have a right to vote on things like mergers or which director will be chosen to lead the company’s board and other issues that come up for a vote at annual meetings.
Receive dividends on company profits
Investors usually make money when the company they invest in thrives. A company generally either has to reinvest its profits back into the business or pay dividends to shareholders. While common shareholders can’t dictate which way a company decides to go with its profits, they do get something in return for their investment in one fashion or another.
Inspect the company’s records
Public companies have to provide transparent financial statements to both the Securities and Exchange Commission and their investors. An investor would be remiss in not examining a company’s annual reports for problems.
Press a lawsuit against the company
Sometimes company leaders overstate the company’s earnings or hide liabilities so that they don’t weaken the confidence of investors. When things like that happen, and they get caught, shareholders may sue over the deception.
Shareholder lawsuits can be disruptive to a company’s reputation and process, so they’re never something to take lightly. Find out what you should do if you anticipate being involved in a shareholder lawsuit.
