What Is a Stockholder? Definition, Rights, and Types

An individual who owns shares in a company is known as a stockholder, also referred to as a shareholder. Understanding this role is fundamental to comprehending how businesses are owned and financed.

Defining a Stockholder

A stockholder is an individual or entity that owns one or more shares of stock in a corporation. This ownership signifies a fractional stake in the company. The terms “shareholder” and “stockholder” are interchangeable. Ownership of shares implies a claim on the company’s assets and earnings, proportionate to the number of shares held. For example, if a company has one million shares outstanding and an individual owns 1,000 shares, they hold a 0.1% ownership stake. This fractional ownership grants certain rights and potential benefits, such as a share in any profits distributed by the company.

Becoming a Stockholder

One of the most common ways to become a stockholder is by purchasing shares on a public stock exchange. This typically occurs through a brokerage account, which acts as an intermediary between the investor and the market. Brokerage firms facilitate these transactions.

Individuals may also acquire shares through employee stock programs offered by their employers. These can include Employee Stock Purchase Plans (ESPPs), which allow employees to buy company stock at a discount, or Restricted Stock Units (RSUs), which vest over time. Shares acquired through these programs often have specific tax implications. Another method of acquiring stock is through inheritance, where shares are transferred to beneficiaries as part of an estate. Additionally, it is possible to become a stockholder by directly purchasing shares from private companies.

Types of Stock and Associated Rights

Companies primarily issue two types of stock: common stock and preferred stock, each carrying distinct characteristics and rights. Common stock typically provides holders with voting rights, allowing them to influence corporate decisions such as the election of the board of directors during annual meetings, often through proxy votes. Common stockholders also have the potential for capital appreciation if the company’s value increases, and they are eligible for dividends if declared by the company’s board. However, common stockholders are residual claimants, meaning they have the lowest priority claim on assets in the event of liquidation, receiving funds only after creditors and preferred stockholders.

Preferred stock generally does not come with voting rights. Instead, preferred stockholders typically receive fixed dividend payments, which are often cumulative, meaning any missed payments must be paid before common stockholders receive any dividends. In liquidation, preferred stockholders have a higher claim on the company’s assets than common stockholders. Preferred shares may also have features like convertibility into common stock or callability by the issuing company.

Regardless of the stock type, stockholders possess several fundamental rights. These rights include the ability to receive dividends when they are declared by the company. Stockholders also have the right to inspect certain company records, such as bylaws, meeting minutes, and shareholder lists, provided there is a proper purpose for the request. Ultimately, all stockholders maintain a residual claim on the company’s assets if the business undergoes liquidation.