• November 2019
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Stockholder

A person or entity that owns a minimum of one share in a corporation, whether held as common stock or preferred stock. Commonly referred to as a shareholder.

 

Companies that choose to structure as corporations are owned by stockholders. As a result, stockholders stand to profit when companies do well and stand to lose money on their investments when companies do poorly. Notably however, unlike the owners of sole proprietorships and partnerships, stockholders cannot be held personally liable for corporate debts and wrongdoing. Similarly, because a board of directors handles the management of a company, stockholders are not held responsible for ensuring a company’s success. In fact, publicly traded corporations have a legal duty to behave in the best interests of stockholders.

 

As a result of the fact that being a stockholder confers an ownership interest, shareholders are entitled to exercise certain rights. As outlined in a company’s charter and bylaws, stockholders may be entitled to the right to vote on material corporate matters, to receive a portion of declared dividends, to inspect the company’s records, to vote by proxy when applicable and to receive a relative allocation in the event of liquidation.

 

One may be designated a common stockholder or a preferred stockholder. Common stockholders are generally granted voting rights, while preferred stockholders are not. However, preferred stockholders tend to receive more stable, fixed dividends. These are not always as profitable as the returns from common stock, but they are less volatile.

 

EXAMPLE:

Friend One: “I gotta ask. How do you afford all this?”

Friend Two: “I became a stockholder in Apple on the day it went public in 1980. Shares in Apple went for $22 back then.”

Friend One: “Woah. What are they worth now?”

Friend Two: “Just under $1,000. Damn, it feels good to be a stockholder.”