Types of shareholders and their roles

A company limited by shares must have at least one shareholder. Every shareholder must have at least one share to make them a partial owner and they will typically receive dividends from the company’s profits. 

 

When you register a company you must provide information about its shares, known as a ‘statement of capital’. This confirms the number of shares, their type, and their total value which is known as the company’s ‘share capital’, along with the names and addresses of all shareholders. 

 

Information must also be provided about the rights of each type or ‘class’ of shareholder including the dividends they will receive, whether their shares can be exchanged or redeemed for money, whether they can vote on how the company is run, and how many votes they have. 

 

Shareholders can benefit financially from a profitable company but they also have responsibilities. These can include: 

 

Often, shareholders have the right to vote on things relating to running the company and they can be elected to a seat on the board of directors. 

 

If a company’s assets are sold shareholders may receive a payment after all the creditors have been paid although they won’t be responsible for any debts. 

 

There are two types of shareholders: common and preferred. 

 

Common shareholders have the right to vote on matters concerning their company so they have control over the way the company is managed and can prevent it from making potentially damaging decisions. 

 

Preferred shareholders don’t have voting rights or a say in how the company is managed. They are entitled to a fixed annual dividend, which they will receive before common shareholders are paid their part. 

 

Both can benefit from increases in their share value if the company is doing well. Shareholders and directors have different roles but a shareholder can be a director at the same time. 

 

The terms shareholder and stakeholder are often used to mean the same thing, but they don’t. A shareholder owns part of a company according to the number of shares they hold. 

 

A stakeholder has an interest in the performance of a company and, although their involvement might be financial, they don’t own part of the company. For example, stakeholders in a business might include employees who rely on the company for their salaries, suppliers who rely on continued orders, and local or national government because of the business rates and taxes the company pays. 

 

Businesses that plan to become publicly listed are initially set up as a private limited company. The key shareholders will be listed as ‘subscribers’ in the memorandum of association. Once the company becomes public, their names remain on the public register even if they leave the company.