When you purchase shares of stock, you automatically become a partial owner of the company whose shares you purchased, and with that ownership come certain powers and privileges. Though every state has its own laws about the rights conferred on shareholders of companies headquartered within their borders, there are certain universal rules and benefits that always apply. These include:
- Sharing in the company’s growth, income and profitability as reflected in the appreciation of its stock price. The amount of participation is based on the number of shares owned. The more shares you own, the more potential you have to realize significant growth.
- Receiving payment or additional stocks called dividends that are generated by the company’s profitability. These are not guaranteed, and are declared by a company’s board of directors periodically.
- The right to have a say in the company’s management by voting in the election of the company’s board of directors, which appoints the company’s CEO.
- Being offered the opportunity to purchase newly issued shares before they are offered to the public. These are called preemptive rights and they can be valuable, as the new shares may be available at an advantageous price.
Beyond these basic rights, those who own common shares are entitled to pursue assets after creditors, bondholders, and preferred shareholders after a company is liquidated. They can also cast votes during the company’s annual meeting, thus having a say on important changes in a company’s direction. Each share generally represents a single vote, so those who own a large number of shares can have a substantial impact on voting results.
It’s notable that shareholders are essentially last in line for assets if a company goes bankrupt. Though many believe that they should be entitled to get some value out of their investment, the general consensus is that those who’ve purchased shares do so knowing that they have nearly unlimited upsides but with the knowledge that they are taking a risk and that if a company goes into the red, they have no liability.
One of the most important rights that shareholders have is the ability to take legal action if they believe that their rights have been violated or that the company’s management has acted in a way that is negligent. These lawsuits can be filed as individual shareholders or together in the form of a class-action lawsuit. If you believe that your rights as a shareholder have been violated and you would like more information on the options available to you, contact us today to set up a consultation with one of our shareholder’s rights attorneys.