Back to Basics: Shareholders

Today, the concept of a shareholder needs little introduction. Shareholders are owners of a business, having ownership rights in corporate stock and other rights as foreseen by the company's by-laws. However, businesses often need to go back to basics when it comes to improving shareholder engagement and creating a shareholder management roadmap.

In a modern business environment, many companies are more and more concerned about communicating and interacting with their shareholders and providing them with more tools and resources to make grounded decisions. Below we go into more detail about various types of shareholders, shareholder rights and how technology and entity management software help corporations with better shareholder engagement.

Types of Shareholders

When defining a shareholder management roadmap, it is essential to consider different types of shareholders, their rights, interests and specific needs. It is important to account for the differences among various types of shareholders when it comes to notifications,  record keeping and other shareholder-related legal and administrative tasks.

Individual and Institutional Shareholders

Company's shares can be owned not only by individual shareholders but also by legal entities such as corporations, mutual funds or trusts. The list of institutional shareholders can also include insurance companies, banks or other entities which are not natural persons.

Common and Preferred Shareholders

The difference between common and preferred shareholders is another factor to be accounted for in a shareholder engagement agenda. While some companies may not have any preferred shares at all, many corporations issue preferred stock. This type of shares provides fewer voting rights than common stock while ensuring guaranteed fixed dividends per share.

Significant  Shareholders

Both the US Internal Revenue Code and Canadian regulations define a significant shareholder as the person or an entity carrying more than 10% of voting rights attached to the company's stock. These shareholders are subject to additional reporting and other requirements, for example, to report their transactions with the company's shares to the U.S. Securities and Exchange Commission, as well as other limitations to prevent short-selling and insider trading.

Becoming and Ceasing to Be a Shareholder

Although becoming a shareholder is possible only if you buy shares in a company, there are still several ways to do it. For example, someone can become a shareholder by purchasing new shares which were not previously issued. However, in a general case, it is also possible to buy shares from another existing shareholder who may transfer their shares according to the articles of incorporation.

Likewise, someone ceases to be a shareholder when they sell all their shares in the company. Finally, shareholders cease to be shareholders in case the corporation is dissolved. 

Shareholder Rights 

In addition to their rights to dividends, shareholders have various other rights associated with their ownership of shares. These rights include the right to vote on shareholder meetings, the right to dividends and remaining property when a corporation is dissolved.

By exercising their right to vote, shareholders approve all fundamental decisions in a corporation, which include:

  • electing and dismissing the board of directors,
  • appointing the auditor of the corporation,
  • making amendments to corporate charter and by-laws,
  • entering into mergers or selling a substantial part of assets,
  • dissolution.

Generally, shareholders exercise all their rights through resolutions held at meetings. There are several types of meetings shareholders can have, including annual meetings and special meetings for solving specific issues. In addition, shareholders can be elected as directors or company's officers, which is common for many smaller organizations.

Shareholder Engagement

Shareholders take an active part in steering companies towards their goals not only by voting but also through many other forms of interaction. The general shift toward digitization and running shareholder meetings online has increased the scope for shareholder engagement. Today, shareholders expect the boards to engage with them much more often and need a better understanding of the company's strategy and day-to-day operations.

Communication with Shareholders

Companies are obliged to provide clear communication and timely notices to their shareholders. For example, corporations are legally required to provide shareholders with regular notifications about the time and place of shareholder meetings. 

Meanwhile, the company's obligations to keep shareholders in the loop are not limited by the obligation to notify about meetings or information disclosures. Since shareholders own a piece of the company, they are always entitled to receive first-hand information about all material facts about the company, timely reports and notifications when new reports are published on the company's website.

Reporting to Shareholders

Shareholders are entitled to examine corporate records, directors' reports, financial statements and other information related to governance and financial performance. In particular, the law obliges companies to present financial statements at the shareholder meeting. Shareholders need data analytics, market presentations, board minutes and other information to make grounded decisions.

Shareholder Compliance

Companies are required to run a shareholder register, including the name, address and number of shares owned by each individual or institutional shareholder. Meanwhile, there are multiple other requirements related to shareholder compliance depending on the jurisdiction.

For example, businesses need to prevent insider trading and initiate black-out periods when trades in the company's stock are restricted for insiders, including significant shareholders. Many companies leverage automation software to enable these functions, set up preclearance procedures, restrict trades automatically and send notifications.

Contact Athennian for Better Shareholder Engagement

Today shareholders need information at fingertips to be better informed about their investment and make grounded decisions in a rapidly changing environment. Companies interested in improving their shareholder engagement can benefit from applying legal technology and entity management software to automate notifications, enable instant access to corporate records, facilitate reporting and ensure shareholder compliance. 

If you are interested in more information about how legal technology can boost shareholder engagement and bring your GRC to an entirely different level, please don't hesitate to request a customized demo with an Athennian entity management expert.

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