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Common shareholders have rights

On Behalf of | Oct 20, 2021 | Business Litigation |

Every company’s charter is slightly different, but publicly traded companies will typically have different ownership levels. For example, there likely are three classes of securities — bondholders, preferred stockholders and common stockholders. While each has its benefits, common stock shareholders are typically at the bottom of the hierarchy. Despite this, they still have rights and can enjoy the benefits of ownership.

The main rights

Their powers may be more limited, but they still may be able to exercise considerable influence and enjoy financial gain:

  • Ownership: They benefit from the increased value when stock prices rise, plus the assets generate profits.
  • Voting power: They can vote individually or by proxy to elect directors or proposals for significant changes like a merger or acquisition during the annual meeting.
  • Transfer ownership: They can sell their stock when they want, which gives an option of cashing in.
  • Dividends: They have a claim on the appropriate portion when dividends are declared, but they do not have a say on picking the amount paid out by dividends.
  • Access to the books: They can look at bylaws, board meeting minutes and other fundamental documents.
  • Accountability: Common shareholders can sue the company through a shareholder class action if a fiduciary breach or dispute occurs.

There may be other benefits unique to the company, such as discounts on hotel rooms if they have stock in a hotel chain.

It is best to understand these rights

Some laws protect shareholders from exploitation or poor management. Nevertheless, it is wise for common stock shareholders to research and understand how the company is set up and what rights they have.