Saturday, July 18, 2009

Right of common shareholders

despite the fact that shareholders are the ultimate owners of the company, they have very little influence on its day-to-day operations. the managers appointed by the board of directors perform the day-to-day management. Since the shareholders vote only for the board, and not the day-to-day managers of the company, the amount of influence on day-to-day operations by the shareholders is very limited and very indirect.
common stock generally provides four rights to the owners of the common shares:
1- voting - common shareholders can vote at the annual shareholder‘s meeting. what specifically they get to vote on will depend on the year and the company, but they generally vote on the board of directors, the external auditor and any other significant business issues.
there are two methods that can be used for voting for the board of directors. The voting for the board is unique because more than one board member will be elected, so this is not a simple "yes" or "no" vote. the method to use will be designated in the registration documents of the company or the shares.
a- in straight voting, the maximum number of votes that can be given for anyone candidate is the number of shares the shareholder owns. In straight voting of one shareholder owns 50.1% of the shares, that shareholder will be able to elect all of the board members.
b- in cumulative voting, each individual share receives a number of votes that is equal to the number of board members to be elected. The shareholder can cast all of his or her votes for anyone candidate. Cumulative voting enables minority shareholder to elect member of the board of directors.
2- Receipt of dividends- dividends mayor not be paid in a given year, and the shareholders are not guaranteed to receive dividends in any given year. However, if the company declares dividends on common shares, the common shareholder has a right to receive that dividend.
3- preemptive rights - these are right that allow an existing shareholder to purchase newly issued shares when the corporation issues them. when this right is granted to shareholders (it is not always granted), the shareholders are given the right to purchase the same percentage of the newly issued shares that they held of the old shares before the issuance. this enables the shareholders to protect their percentage of ownership from dilution when new shares are issued. this simply the right to buy them. If a shareholder does not have the necessary cash to purchase the shares, the shares will be sold to others, and the ownership percentage of the shareholder will be reduced.
4-Distribution of assets- in the case of the liquidation of the company, common shareholders have a right to receive any of asset remaining after the settlement of all debts. common shareholders are the last category of parties to receive money in liquidation, so if the liquidation takes place in bankruptcy, it is possible that the common shareholders will not receive anything from the company.

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