Did you know you have rights as a shareholder of a company’s stock? Even though only 8.9% of Americans own their own business, a much more significant percentage of Americans own stock in public companies.
…but what does that really mean? Is stock ownership only good for growing wealth, or are there other benefits to it?
You actually have several important rights as a shareholder. This short article will explain each.
Shareholder Right #1: Part Ownership in the Company
A share of stock represents a tiny portion of the company. So, for example, if the company has 1,000,000 shares and you own one share, you own 1/1,000,000 of the company.
Owning such a tiny fraction isn’t exactly going to get you special treatment. Owning a share of Mcdonald’s stock won’t get you free food every time you go in. Likewise, if you own a share of Chipotle, don’t expect a free burrito on your next visit.
But owning a portion of the business does have an upside. If the company’s value increases, so does the value of your stock. Multiply that growth by several decades and thousands of accumulated shares, and you may find yourself sitting on a lot of money.
Shareholder Right #2: Voting Rights
Shareholders of common stock have the right to cast votes for essential issues. For example, let’s say you own a share of Mcdonald’s, and they are electing a new board of directors. You can (if you choose to) cast a vote at the company’s annual meeting.
Likewise, let’s say Mcdonald’s was considering acquiring another restaurant chain. Again, you can cast a vote to let your voice be heard.
Some shareholders choose not to vote, but roughly 92% of votes are submitted for significant decisions, according to ProxyPulse. Many shareholders – especially institutional shareholders – decide to vote to help steer the company in the direction they think is best.
Like if you owned your own business, you’d want a company you’re invested in to succeed, right? Then make sure to cast your vote during the company’s next annual meeting! If you can’t attend, you can do it via proxy or mail-in.
Shareholder Right #3: The Right to Transfer Your Ownership
When you invest in assets that are major purchases – such as a house – it’s a bit of an ordeal to transfer ownership.
Selling your common stock takes a few seconds using an app on your smartphone. Shareholders have a lot of liquidity, hence why day trading is a thing.
If you buy a stock today that triples in price tomorrow, congratulations! You changed ownership to take advantage just in time.
If you buy a stock today and it tanks tomorrow, you’re out of luck. Your investment tanked with it.
The good news is that if you aren’t happy with your share, you can easily sell it.
Common Stock Shareholder Right #4: Dividends
You may have heard of dividends before. They’re cash payments that public companies pay out to shareholders regularly.
Some companies choose not to pay any dividends. However, most companies that do pay dividends usually do it quarterly. Others do it on other timeframes, such as monthly or annually.
Dividends are paid out based on how the company is performing. If it’s doing well, dividends are distributed to shareholders as a benefit for them taking a risk by investing money in the company.
If the company is doing poorly, it may choose to stop paying dividends until they get back on its feet.
Right #5: The Right to Sue
If it comes to light that the company did a wrongful act, common shareholders have the right to sue. For example, suppose the company cooked the books and made it look like it was performing better than reality. In that case, shareholders may choose to sue the company.
Right #6: The Right to Inspect Corporate Records and Books
If you’re a shareholder, you can view the company’s annual meeting minutes and bylaws. These documents are available so you understand what happened and the company’s direction.
Do you have any other questions about your rights as a shareholder? Whether you own stock in a public company or a small corporation, give us a call at 714.456.9118 or send us an email. We’ll talk to you soon.