What are the Types of Shareholders?

Who is a Shareholder?

Did you know what actually shareholder defines?

Don’t worry all your query has one solution over here.

From this article, we will give you the brief on shareholders' meaning, types, and rights from our article that is on “What are the different types of Shareholders?”

In the stock market trading, there is hype and all the traders had gained a lot of attraction regarding trading or investing in India.

In the old times, most of the individuals used to do the saving in the low-interest deposit options where they get guaranteed returns on the investments.

With increasing in the number of participants in the stock market so there is further diversification in the types of shareholders in the market.

Let’s directly jump on the main content.

Starting with,

What is Shareholder?

The term “Shareholder” indicates an individual identity that can be a person, institution, or company that has ownership of at least one share of a company’s stocks, which is referred to as equity.

This type of ownership is also known as the Shareholders and are the partial owners of the company and have the right to get the share in the profit that the company generates.

These types of profits are provided to the shareholders in a way of dividends distribution or through the increase in the stock valuation.

If in case, when there is a drop in the company’s profit so there will be some amount of loss that has been incurred and both the company’s and the shareholders will bear the loss.

With this, it is crucial to note that when a company liquidates its assets, Equity shareholders receive their share of the assets only after the bondholders, creditors, and preference shareholders have received their portion of the profit.

Furthermore, in the case when a company declared bankruptcy, shareholders also get a chance of losing their entire investment in that company.

Now, let’s understand the Rights that the Shareholders get.

What is the Right of Shareholders?

By this time you know that the shareholders are the partial owner of the company, so he or she can enjoy some of the perks as per the company’s law.

These would include:-

• Right to receive Dividends.
• Right to check out the company’s records and books.
• Right to make key decisions for the company’s welfare.
• Right to sue a company, if in case there are misdeeds from the officers or directors part.
• Right to vote
• Right to get the part of assets at the time of the liquidation of the company.

These were all the certain rights of the shareholders.

Now, it’s time to know about the types of shareholders.

What are the different types of Shareholders?

There are only two types of shareholders:

1. Equity Shareholder
2. Preference Shareholder

Let’s brief about the types of Shareholders:

#1 Equity Shareholders

• Equity shareholders are the partial owners of the company.
• All the equity shareholders have voting rights in the company depending upon the number of shares owned individually by them.
• They have the right to question the management on the company’s working and to take the reports from them.
• For instance, their votes decide if any director, auditor, raising of debt, acquisitions etc. is to be done or not.
• If the majority of the shareholders oppose the motion then the promoters of the company will have to abide by the shareholder's decision.
• At the time of liquidation or winding up of any company the Equity shareholders are paid at the end for the value of their holding after Debenture holders and Preference shareholders are paid off.
• Also the dividends will be first paid to Preference shareholders and then to the Equity shareholders.
• Equity shareholders are entitled and have the right to receive the Bonus and Rights and can also participate in the Buyback procedure.
• Further, the equity shareholders can also be categorized as per their shareholding pattern into the promoters, Institutional investors (foreign and domestic) and public.

#2 Preference Shareholders

• Preferred shareholders, on the other side, enjoy precedence over equity shareholders when it comes to a company’s profit distribution.
• While they do not hold a right to vote in matters that are subjected to a company’s executive decisions.
• The preferred shareholders are entitled to get fixed dividend rates, even if in a case where the company’s profitability is at stake.

Let’s check out the difference between Equity Shareholders and Preference Shareholders:

Difference between Equity Shareholders and Preference Shareholders:

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