What is a Shareholder? (Overview and Definition)

A company’s board of directors holds considerable authority within an organization, but they’re not the only voice that matters. Shareholders play a big role in determining the direction of a business. The exact rights of a shareholder change depending on the company and the type of shares they hold. 

This article explains the general powers of shareholders and explains how OnBoard software helps improve the working dynamic between shareholders and senior management.

What is a Shareholder?

A shareholder is a person, group, or legal entity that owns at least one share of an organization’s stock. You can become a shareholder by investing your own money in the company, obtaining the shares of an incumbent stockholder, or subscribing to the company constitution during incorporation. Owning shares provides each shareholder with rights and obligations regarding the direction of the company.

Shareholder Roles and Responsibilities

1. Voting

One of the main selling points of becoming a shareholder is that each party gets voting rights during shareholder meetings, but this is only true if you own a certain form of stock. Typically, organizations present two types of stock: common and preferred. Common stocks impart shareholders with the right to vote. These are the most readily available form of shares and what most investors acquire via the stock market. 

The other type of stock is known as preferred shares. While preferred stocks don’t give shareholders the right to vote, they do give stockholders a priority claim to dividends, meaning they receive payment before anyone with common stock. Creditors and bondholders are also paid before common shareholders.

2. Monitoring Management

While the day-to-day management of the organization is left to others, shareholders play a vital role within a company’s corporate structure. Their equity in the business entitles them to certain governance rights and the final say on decisions, such as:

• The election, re-election, and removal of company directors
• Changes to the company’s constitution
• Inspecting the company’s books and approving financial statements
• Appointing a statutory auditor
• Declaring a final dividend

Shareholder rights are outlined in the organization’s articles of association. 

Shareholder decisions are officially made during general meetings (any formal gathering involving a quorum of shareholders), annual general meetings (a yearly meeting between shareholders and board members), or extraordinary general meetings (meetings called to address a pressing matter). 

3. Engagement

Shareholder engagement refers to the process of investors and companies developing a healthy working relationship where they exchange and discuss pertinent business information to consistently make quality decisions. Through meetings, private dialogue, and other activities, each party works to create a mutually beneficial exchange that ultimately leads to a better performance in the marketplace and an enhanced reputation for the company. 

4. Risk Assessment

Shareholders are also tasked with doing their part to help the company plan and execute its risk management strategy. Their different perspectives help companies identify potential risks before they become serious problems. Mitigating risks early on helps organizations remain legally compliant with all enforced standards and regulations, as well as use their time and resources more efficiently.

5. Promoting Sustainability and Corporate Social Responsibility

Lastly, the oversight of shareholders can push a company to consider more sustainable ways to do business and to practice corporate social responsibility (CSR). CSR is a business model where an organization actively works to take the societal, environmental, and ethical consequences of its decisions into account. This becomes a more pertinent topic as the corporation becomes bigger and more successful. CSR can provide a boost to employee morale and brand reputation, two qualities that can only help a business grow over time. 

How to Improve Shareholder Relations

It’s natural for shareholders and the board of directors to disagree on occasion. Their goals aren’t always in alignment. Shareholders typically focus on short-term results. Boards of directors may operate on a much longer timeline. Here’s how to cultivate a good rapport between board members and shareholders.

Effective Communication

All good relationships, whether they’re personal or business, are built on open communication among all parties. Establishing clear communication channels between shareholders and board members helps streamline the exchange of information and address any potential conflicts in a constructive frame of mind. Regular meetings, newsletters, and specified online portals can be helpful tools in this regard. The appointment of an independent director is another way to bridge the gap between shareholders and management. 

Accessibility and Engagement

Shareholder mood will also be improved if they have reasonable access to the board of directors on a consistent basis. Creating an environment where investors can express their opinions through meetings, forums, or online platforms will help them feel empowered and valued.

Corporate Governance and Transparency

For shareholders to fully understand company strategy, board members need to be transparent about the financial and legal status of the company. Providing ample information about the business helps manage expectations and make better decisions.