Different Types of Shareholder | Difference Between Equity and Preference Shareholder

What are the Types of Shareholders?

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 a 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 the guaranteed returns on the investments.

With increasing in the number of the participants in the stock market so there are 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” indicate an individual identity that can be a person, institution or a company that have ownership of at least one share of a company’s stocks, which is referred as equity.

This type of ownership is also known as the Shareholders and are the partial owners of the company and have 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 case when a company declared as bankruptcy, shareholders also get a chance of losing their entire investment on that company.

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

What are the Right of Shareholders?

As 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 decision for company’s welfare.
  • Right to sue a company, if in case there is misdeeds from the officers or directors part.
  • Right to vote
  • Right to get the part of assets in 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 the shareholders.

What are the different types of the 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 the 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 shareholders 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 right to receive the Bonus and Rights and can also participate in 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, enjoys the precedence over the equity shareholders when it comes to a company’s profit distribution.
  • While they do not hold a right to vote in matters that is 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 in Equity Shareholders and Preference Shareholders:

Difference between Equity Shareholders and Preference Shareholders:

Factors 

Equity Shareholders Preferred Shareholders
Dividend distributionEquity shareholders enjoy the dividends that is generated from the profit in business.Preferred shareholders enjoy precedence over an Equity shareholder pertaining to dividend distribution.
Voting rightsEquity shareholders enjoy voting powers regarding executive decisions of a company’s operations.Preferred shareholders do not enjoy the voting rights that is a subject matter of the company.
ProfitabilityDividend distribution among the Equity shareholders is only done on the basis of how a company performs in a particular year. For example, if a company incurs losses in a given year, Equity shareholders incur losses as well. Similarly, if it generates higher profits, the shareholders are also entitled to receive higher dividends.Preferred shareholders are entitled to receive dividends at a fixed rate, which is not influenced by a company’s performance.
Process during insolvencyEquity shareholders carry a high liability if a company declares insolvency, and also stand a chance of losing their entire investment on the company.

During the time of insolvency, preferred shareholders have a right to claim the company’s assets.

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