Shareholder Rights: An Authoritative and Important Guide to Everything Common Shareholders Need to Know [2025]

SHAREHOLDER RIGHTS

LAW OFFICES OF TIMOTHY L. MILES

TIMOTHY L. MILES

(855) TIM-M-LAW (855-846-659)

[email protected]

Top 25 Mass Torts Lawyer

Top 100 Trial Lawyer

Top 25 Class Action Lawyer

SUBMIT YOUR INFORMATION

What Are Shareholder Rights?

cloud of words with shareholder in red in show importance of shareholder rights — Having robust shareholder rights assure that shareholders are treated fairly, justly and equitably, and management and boards are accountable to owners.

Shareholders, or stockholders, own a portion of a company’s stock and have certain rights as a result of that ownership. These rights are typically outlined in the company’s charter and bylaws, and can vary depending on the class of shares (e.g., common or preferred stock) and whether the company is publicly traded or privately held. The following are some of the shareholder rights that common shareholders of a corporation possess:

Voting Rights: Shareholders, especially those holding common stock, generally have the right to vote on significant corporate matters. This includes electing the board of directors, approving major corporate changes like mergers and acquisitions, and potentially voting on shareholder proposals regarding company policies or practices.
Receiving Dividends: Shareholders are typically entitled to receive a portion of the company’s profits in the form of dividends, when declared by the board of directors.
Access to Company Information: Shareholders have the right to inspect certain corporate documents and records, such as bylaws, minutes of board meetings, and financial statements, to stay informed about the company’s performance and operations. This right is generally limited to purposes reasonably related to the shareholder’s interests.
Transferring Ownership: Shareholders have the right to sell or transfer their shares, providing liquidity and the ability to convert their investment into cash.
Right to Sue: Shareholders may have the right to sue the corporation or its officers and directors in certain situations, such as for breaches of fiduciary duty, corporate mismanagement, or denial of their rights.
Participating in Shareholder Meetings: Shareholders have the right to attend and participate in annual and special shareholder meetings, where they can voice their opinions and vote on proposals.
Claim on Assets during Liquidation: In the event of a company’s liquidation, shareholders have a claim on any remaining assets after creditors and bondholders have been paid.In the following sections, we will discuss these important shareholder rights in detail. Our goal is to empower you with the knowledge of the rights you posses so you can make an informed decision when you rights come into play or you are need to make a decision about your investment.

An Overview of the Basics of Common Shareholder Rights

Before addressing specific shareholder rights, we will discuss some of the basics of common shareholders.

What Is Common Stock?

white paper clipped to brown folders with shareholder rights in black with white background — Shareholder rights are a cornerstone of effective corporate governance and play a key role in promoting transparency, accountability, and ensuring that companies operate in the best interest of their owners, the shareholders.

Common stock refers to a type of security that represents ownership in a corporation. It is one of the most widely known and traded forms of stock in the market. Common stockholders have the right to vote on corporate matters and have the potential to receive dividends, which are a portion of the company’s profits distributed to shareholders. They also have the ability to participate in any appreciation in the company’s value through capital gains. Common stockholders rank after bondholders and preferred stockholders in terms of priority for receiving assets in the event of bankruptcy. Overall, common stock provides investors with an opportunity to share in the success and growth of a company.

What Are the 3 Types of Shareholders?

There are three types of shareholders in a company: common shareholders, preferred shareholders, and institutional shareholders.

Common shareholders are the most common type and hold ordinary shares in the company. They have voting rights and are entitled to a share of the company’s profits through dividends.

Preferred shareholders, on the other hand, have a higher claim on the company’s assets and earnings compared to common shareholders. They typically receive fixed dividends and have priority in case of liquidation.

Lastly, institutional shareholders are large financial institutions such as mutual funds, pension funds, and insurance companies. They invest significant amounts of money in the company and often have a long-term investment horizon. These shareholders can influence the company’s decision-making process through their voting power.

What Is Preferred Stock?

1980s picture of wall street sigh in NY city used in the to show importance of shareholder rights — Shareholder rights are the cornerstone of corporate governance, providing a framework for accountability, transparency, and fairness.

Preferred stock is a type of investment security that combines elements of both common stock and bonds. It is called “preferred” because it has certain preferences and advantages over common stock. Preferred stockholders have a higher claim on the company’s assets and earnings compared to common stockholders. They are entitled to receive a fixed dividend payment before any dividends are paid to common stockholders.

In the event of liquidation, preferred stockholders have priority over common stockholders in receiving their share of the company’s assets. Preferred stock can be a more stable investment option for investors who prioritize income generation over capital appreciation.

Overall, preferred stock offers a unique blend of stability and potential for income generation in the investment market.

What Are Common Shareholders?

An individual who has acquired at least one common share of a company is known as a common shareholder. These shareholders have voting rights are eligible to cast a ballot on corporate matters and are entitled to receive declared common dividends. In the case of bankruptcy, common shareholders are rewarded last, after debtholders and preferred shareholders.

Shareholder Rights of Common Shareholders

Voting Power on Major Issues

One of the most fundamental shareholder rights of common shareholders is voting rights.

Common shareholders have the right to vote:

At the company’s annual meeting;
The right to vote in an election of the company’s director; or
The right to vote on changes in the company’s structure; and
The right to vote any merger & acquisition.

Shareholders may vote in person or by proxy vote if unable to attend.

Ownership in a Portion of the Company

When a company flourishes and is successful, the common shareholders own a piece of a company that therefore has value. The better a company performs and the significance its outlook, then the higher its valuation rises and the price that each share of ownership is worth. Therefore, if you own a stake in a company that keeps making profits, your piece of ownership will grow in value and be worth more than what you initially paid

The Right to Dividends

Shareholders are typically entitled to receive a portion of the company’s profits in the form of dividends, when declared by the board of directors. Management of a company essentially has two options with profits: they can be reinvested back into the firm or paid out in the form of a dividend. Investors do not have a say as to what percentage of profits should be paid out—the board of directors decides this. However, whenever dividends are declared, common shareholders are entitled to receive their share

The Right to Inspect Corporate Books and Records

Shareholder rights also include common shareholders have right to examine basic documents, for example, the company bylaws and minutes of board meetings. Moreover, the Securities and Exchange Act of 1934 (Exchange Act) requires public companies to periodically disclose their financials. Two of the most important documents are the annual report and the Form 10-K which must be distributed to common shareholders.

The Right to Transfer Ownership

The right to transfer ownership means common shareholders are allowed to trade their shares on an exchange. The right to transfer ownership is key, as the liquidity provided by stock exchanges is important.

Liquidity, which refers to the degree to which an asset or security can be quickly bought or sold in the market without affecting its price, is one of the key features that differentiates stocks from an investment such as real estate. Ownership of property can take months to convert that investment into cash.

However, because stocks are so liquid, investors can move their money into other places almost instantaneously

The Right to Sue for Wrongful Acts

Shareholders may have the right to sue the corporation or its officers and directors in certain situations, such as for breaches of fiduciary duty, corporate mismanagement, or denial of their rights.

Claim on Assets during Liquidation

In the event of a company’s liquidation, shareholders have a claim on any remaining assets after creditors and bondholders have been paid.

Respecting Shareholder Rights Is Crucial for Good Corporate Governance

securities fraud in black over white and green stock ticker used to show importance of shareholder rights — Shareholder rights are extremely important because they protect the interests of investors while ensuring that companies are accountable to their owners.

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It encompasses the relationships between various stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the wider community. The primary goal of corporate governance is to ensure the accountability and transparency of an organization, as well as its long-term success and sustainability.

It involves establishing a framework for decision-making and monitoring the actions of management to ensure they align with the interests of shareholders and other stakeholders. Effective corporate governance is crucial in maintaining investor confidence and promoting ethical behavior within organizations. Therefore, respecting shareholder rights is vital for good corporate governance.

Conclusion

Understanding these shareholder rights is important for anyone who invests in a company, as it allows them to participate in the company’s governance, influence its direction, and protect their investment

Contact the Law Offices of Timothy L. Miles Today

If you suffered substantial losses in any case and wish to serve as lead plaintiff in the case, or if you just have general questions about you rights as a shareholder, please contact attorney Timothy L. Miles of the Law Offices of Timothy L. Miles, at no cost, by calling 855/846-6529 or via e-mail at [email protected].

For more information on shareholder rights and securities law in general, please visit our Investor Resources Center and our Frequently Asked Questions page with answers to over 350 questions on every area of securities law, civil procedure and much more. Also, please see our Lead Plaintiff Deadline page which has a calendar when lead plaintiff motions are due in various securities cases.

We hope you enjoy, you will find a wealth of information on shareholder rights and securities law in general.

SUBMIT YOUR INFORMATION

LAW OFFICES OF TIMOTHY L. MILES
TIMOTHY L. MILES
(855) TIM-M-LAW (855-846-6529)
[email protected]

(24/7/365)