Company Shareholder Definition, Types, Roles, and Rights

When talking about any company, it is important to understand its structure and management elements, which often include the company's shareholders. In simple terms, shareholders are individuals or legal entities that own a part of the authorized capital and therefore have a set of corporate rights. Holding shares in a company makes a shareholder a key management figure, as it is the shareholder who invests in the business and expects to receive dividends or increase the company's value. The position of a shareholder determines not only financial interest, but often also influence on strategic decisions.

Depending on the type of shareholder, they have different rights and powers, so a balance is struck between the interests of shareholders, management, and the company itself. So, today Icon.Partners will tell you a little more about the position and role of shareholders.

Shareholder Definition & Meaning 

Thus, the shareholder definition is the owner of corporate rights, which are enshrined in the form of shares that confirm his participation in the company's contributed capital. This gives the entity a special legal and economic position in relations with the company, as well as other participants in management processes. Shareholders are the fundamental elements of the business structure, as they form the capital necessary for the company's operations and it is the shareholders who bear the risks associated with the activities. The shareholder's influence is also reflected in the company's management, strategic goals and development path. Shareholders' rights are often collective, i.e., they are exercised through meetings, voting, representation, etc. As a general rule, the law clearly defines the rights and obligations of shareholders in order to prevent and avoid abuse, protect the investments of each participant, etc. Thus, a shareholder combines several ideas, namely, the ideas of ownership, control and responsibility for business results.

Who Are Shareholders in a Business?

Answering the question of what is the position of a shareholder in business, it is worth noting that it is not only the provision of resources for development, but first and foremost the existence of corporate rights that distinguish them from creditors or partners. The resources spent on business give the right to choose the direction of the company, elect management bodies, and influence key decisions through certain control mechanisms. 

The meaning of shareholders are often categorized as strategic, when investors focus on long-term development, or financial, when the priority is dividends and capital gains. The role of a shareholder is also important for the company's market position, as trust in current shareholders and their reputation will help attract new shareholders and inflows of funds.

It should not be forgotten that it is the shareholders who directly bear the risks of the company's losses (within the limits of their own shares, of course), but this risk also creates an opportunity to gain value in the business. Therefore, shareholders form the basis of responsibility and sustainable development.

Do Shareholders Own the Company?

The answer to the question of “do shareholders own the company” will depend on the context. At first glance, shareholders have ownership rights in the company because they have shares that represent a real stake in the company. Shares give them the right to receive dividends, participate in meetings, influence key decisions in the company by voting, etc. On the other hand, a company is an independent legal entity, has separate property, enters into contracts, has obligations and is liable with its own assets.

Therefore, the shareholders definition means that they are rather owners of corporate rights than of the company as a whole. Their influence is limited by the law, constituent documents and management decisions. Shareholders cannot interfere with the work of managers who are responsible for the company's operations.

Types of Shareholding

Now let's move on to the classification. Majority and minority shareholders should be considered the main types of shareholding. Majority shareholders control a significant share of shares and therefore have a decisive influence on decision-making, for example, during voting. Minority shareholders, on the other hand, own a small number of shares and therefore do not always have a real influence on management (but do not forget that their rights are also protected by law).

In addition, we can define shareholders based on the type of shares they hold. For example, if a shareholder holds ordinary shares, he or she has the right to vote at meetings, and may receive dividends after payments to certain creditors or preferred shareholders. Thus, preferred shares entitle their holders to a fixed income from the company's profits, but may not give them voting rights.

We can also mention institutional shareholders (e.g., funds, banks, investment companies), which provide significant resources and are primarily focused on long-term development. In contrast to institutional shareholders, we define individual shareholders who invest for financial gain. Therefore, different approaches to classification allow us to better understand the level of influence and goals depending on the shareholders' interest.

Role of a Shareholder in a Company 

When thinking about the question “Who are shareholders in business?” it is worth remembering their role first.  It is important to remember that owning a share is not only the right to receive dividends, but first and foremost an opportunity to influence the company's strategic development and the path to prosperity. At the general meeting, shareholders make extremely important decisions, such as appointing or removing members of the board of directors, amending the constituent documents, approving a merger or organization, etc.

This is primarily a control mechanism that ensures a balance of power within the company.

An equally important function of shareholders is to provide financial resources, as this is an integral part of business, especially when we are talking about the initial stages.

Shareholders also often drive reforms and changes in the company, demanding transparency in decision-making and clarity of the team's plans. This also implies the role of shareholders as permanent supervisors who are most interested in the company's growth and development, profitability, and market share.

Often, shareholders are also the company's representatives in the market, as the presence of well-known and experienced shareholders in the company attracts others to participate, increases trust and predictability of development.

Therefore, a shareholder is not just an investor who came to give money and make a profit, but first and foremost a team member who is focused on growth.

Shareholders in Corporate Governance 

Our clients often ask who are shareholders in the corporate governance structure of a business. Here, we always say that shareholders are the ones who form the basis of the company's ownership structure and determine the strategic goals of the business. As mentioned earlier, such participation is carried out through meetings, which are the highest body of corporate governance.

It should be noted that in addition to voting, shareholders have the right to initiate discussions and consideration of specific issues, set requirements for management transparency, obtain reports, and monitor compliance with ethical and legal standards and rules. Institutional investors have an even stronger influence, as they can shape investment policies that take into account risks and business development requirements.

One of the main tasks of corporate governance is to maintain a balance between the interests of shareholders and managers. Management focuses primarily on operational management, while shareholders have long-term goals. This creates a system of checks and balances, where management runs the day-to-day business but is controlled by shareholders.

Why Shareholders Are Important for a Business 

In conclusion, it is important to note that the role of shareholders goes far beyond mere financing. First and foremost, it is a personal contribution to the creation of the company, providing the initial capital used to launch and scale the business. Raising funds through shares allows the business to avoid dependence on loans and obtain resources for growth with fewer restrictions. 

In addition to the funds they contribute, shareholders are often a source of experience in creating and managing a business, attracting professional contacts that contribute to business development. An institutional investor can be a driving force behind the implementation of management and transparency standards and corporate responsibility, which enhances the company's image. In addition, shareholders are an indicator of trust in the business. The popularity of shares on the market signals the company's strong position and attracts new investors, as well as helping the business to develop new niches or enter new markets.

Shareholders often have a disciplining effect on the business as a whole, as management understands its accountability in its activities and must remember not only operational but also strategic goals.

Icon.Partners emphasizes that shareholders are an extremely important element of the business ecosystem, encompassing both the financial and strategic aspects of development.

FAQ – Shareholders Explained

What is the legal definition of a shareholder?

Most often, by definition, a shareholder is a person who owns shares in a company and has corporate rights provided for by law and statutory documents.

Can a company exist without shareholders?

Of course, shareholders are not a mandatory element of all companies. LLCs, individual entrepreneurs, charitable organizations, etc. do not require shareholders. Shareholders are necessary in companies that issue shares.

What’s the difference between a shareholder and an investor?

An investor is a broader concept than a shareholder. Shareholders vs investors: a shareholder owns shares in a company, while an investor may invest in any type of asset without necessarily owning shares. 

Do shareholders get profits or dividends?

Shareholders receive a share of the profits or dividends, but most often the payment must be approved by the general meeting.

How are shareholder rights protected?

The basic rights of shareholders are protected by the requirements of applicable law, statutory documents, and the possibility of going to court.