Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

  1. Business angel
  2. Corporation
  3. Director
  4. Limited company
  5. Shareholders' agreement
  6. Stockholders' equity

Shareholder – What is a shareholder?

A shareholder is a party that legally owns shares of a company’s stock. They may also be known as a stockholder, subscriber, or member.

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Shareholders can be an individual person, a company, or another kind of institution.

Generally, shareholders own a company but have very little to do with day-to-day management. Instead, the company is managed and run by its directors.

Shareholders who own less than 50% of a company’s stock are known as ‘minority shareholders’, whereas shareholders who own 50% or more of a company’s stock are called ‘majority shareholders’.

Shareholders vs. stockholders. vs. stakeholders

Shareholders and stockholders are synonymous – stock is just another word for shares.

However, there is a big distinction between shareholders and stakeholders. Shareholders must own at least one share of the company’s stock, whereas a stake holder is any party who has an interest in the company, or could be affected by the company's activity.

Shareholders are therefore stakeholders, but stakeholders are not necessarily shareholders. Stakeholders also include investors, employees, and customers.

How are shares issued?

Most limited companies are ‘limited by shares’ – meaning they are owned by shareholders. If a company is limited by shares, it should have at least one shareholder. The shareholder can be a director. There’s no limit on how many shareholders a company can have.

When a company is registered, it needs to provide information about shares, including:

  • Share capital – the total number of shares and their total value. For example, if a business issues 400 shares each with a value of £2, it has a share capital of £800.
  • The names and addresses of all shareholders.
  • ‘Prescribed particulars’ – the type or ‘class’ of share each shareholder owns, and the rights these shares give them.

Shareholders’ rights

When an individual, company, or organisation purchases shares, they are given certain rights. All stockholders have the right to:

  • Attend general meetings
  • Receive a share of the company's profits
  • Receive a copy of the annual report and certain other accounts
  • Inspect statutory accounts and financial documents
  • Receive a share of any surplus funds if the company shuts down.

Shareholders’ rights and prescribed particulars

The specific rights shareholders are granted depend on the class of share they own, or 'prescribed particulars'. Different classes of share impose different restrictions, including:

  • The share of dividends each shareholder gets
  • Whether shares can be exchanged for money
  • Whether the shareholder can vote, and, if so, how many votes they can have
  • Voting rights in exceptional circumstances.

Shareholders’ rights are defined in the company’s articles of association and shareholders’ agreements.

Stockholders and company finances

Because stockholders are the owners of a company, they benefit when the company is successful because their stock increases in value. Alternatively, if the company does not perform well, the price of stock declines and the shareholders can lose money.

However, unlike sole traders or partnerships, shareholders have limited liability, meaning that they are not personally responsible for any debts or financial losses incurred by the company.