shareholders

Examples of shareholders in the following topics:

• Maximizing Shareholder and Market Value

  • In large firms where there is a separation of ownership and management and no controlling shareholder, the principal–agent issue arises between upper-management (the "agent") and shareholders (the "principals").
  • The danger arises that, rather than overseeing management on behalf of shareholders, the board of directors may become insulated from shareholders and beholden to management.
  • The Anglo-American (US and UK) "model" tends to emphasize the interests of shareholders.
  • Additionally, short-term focus on shareholder value can be detrimental to long-term shareholder value.
  • Maximizing shareholder and market value is, for some, one of the goals of financial management.

• Conflicts of Interest Between Shareholders and Bondholders

  • The shareholders and bondholders have different rights and returns, leading to potential conflicts of interest.
  • Shareholders also prefer that the company pay more out in dividends than bondholders would like.
  • Shareholders have voting rights at general meetings, while bondholders do not.
  • This can negatively impact the shareholders.
  • Describe the conflict of interest between a company's shareholders and its bondholders

• Conflicts Between Managers and Shareholders

  • In this case, the principal would be the shareholder.
  • This being said, shareholders usually concede most of their control rights to managers.
  • While attempting to benefit shareholders, managers often encounter conflicts of interest.
  • Advocates of governance typically encourage corporations to respect shareholder rights, and to help shareholders learn how and where to exercise those rights.
  • Discuss different examples of a conflict of interest between managers and shareholders

• Voting Right

  • In many cases, the shareholder will be able to vote for members of a company board of directors and, in general, each share gets a vote as opposed to each shareholder.
  • Therefore, a single investor who owns 300 shares will have more say in a voting matter than a single shareholder that owns 30.
  • Many of the voting rights of a shareholder can be exercised at annual general body meetings of companies.
  • Shareholders also have the option to mail their votes in if they cannot attend the shareholder meetings.
  • This scene from "The Office" humorously illustrates a shareholder meeting, where the shareholder can exercise their right to vote on company issues or question company directors.

• Dividends Payable

  • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
  • Dividends are the portion of corporate profits paid out to shareholders.
  • There are two ways to distribute cash to shareholders: share repurchases (reported as treasury stock in the owner's equity section of the balance sheet) or dividends.
  • Therefore, a shareholder receives a dividend in proportion to the shares he owns -- for example, if shareholder Y owns 100 shares when company Z declares a dividend of USD 1.00 per share. then shareholder Y will receive a dividend of USD 100 for his shares.
  • For the company, a dividend payment is not an expense, but the division of after tax profits among shareholders.

• Managers, Shareholders, and Bondholders

  • Three parties key to the corporation's functioning are managers, shareholders, and bondholders, each of which can have different interests.
  • Three parties key to the functioning of the corporation are the managers, shareholders, and bondholders.
  • While managers control the corporation and make strategic decisions, shareholders are owners, and bondholders are creditors.
  • Shareholders, managers, and bondholders have different objectives.
  • Shareholders also prefer that the company pay more out in dividends than bondholders would like.

• S-Corporations (S-Corps)

  • To avoid this "phantom income" scenario, S corporations commonly use shareholder agreements that stipulate at least enough distribution must be made for shareholders to pay the taxes on their distributive shares.
  • Thus, income is taxed at the shareholder level and not at the corporate level, and payments are distributed to S shareholders tax-free to the extent that the distributed earnings were not previously taxed.
  • Spouses are automatically treated as a single shareholder.
  • Shareholders must be U.S. citizens or residents and natural persons, so corporate shareholders and partnerships are generally excluded.
  • Profits and losses must be allocated to shareholders proportionately to each one's interest in the business.

• Claim to Income

  • In the cases of bankruptcy and dividend distribution, preferred stock shareholders will receive assets before common stock shareholders.
  • In general, common stock shareholders will not receive dividends until it is paid out to preferred shareholders.
  • This translates to a return on investment to shareholders.
  • This will be different to common stock shareholders and preferred stock shareholders because of the different prices and rewards based on holding these different kinds of shares.
  • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.

• Control and Preemption

  • Shareholders have the right of preemption, meaning they have the first chance at buying newly issued shares of stock before the general public.
  • A shareholder or stockholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation.
  • The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions
  • While shareholders are offered the option of early purchase, they do not necessarily have to take it.
  • This scene from "The Office" humorously illustrates a shareholder meeting, where the shareholder can exercise their right to vote on company issues or question company directors.

• Purchasing New Shares

  • New shares can be purchased on exchanges and current shareholders will usually have preemptive rights to newly issued shares.
  • Current shareholders may have preemptive rights over new shares offered by the company.
  • In this way, existing shareholders can maintain their proportional ownership of the company, preventing stock dilution.
  • New shares can be traded on exchanges such as the Nasdaq, but will usually be offered to current shareholders before being put on sale to the general public.
  • Discuss the process and implication of purchasing new shares by a shareholder that already holds shares in a company