As partial owners of the company, common shareholders have the right to participate in a company’s profitability for as long as they own the shares. Division of profits is based on the number of shares owned by a shareholder, and gains can be substantial to shareholders over time.
In addition to a share in profits generated by the company, shareholders also have rights to income distributions through dividend payments. If a company’s board of directors declares a dividend in a certain period, common shareholders are in line to receive it.
ability to cast votes in a company’s annual or general meeting. Major shifts within a publicly traded company must be voted on before changes can take place, and common shareholders hold the right to vote either in person or via proxy. Most common shareholder voting rights equate to one vote per share owned, resulting in greater influence from shareholders who own a larger number of shares.
Common shareholders also have the right to influence company management through the election of a company’s board of directors. In smaller companies, the president or chairperson of the board is typically the individual who owns the largest share of common stock. Larger companies may have greater diversity in the common shareholder investor pool.
In either case, individuals in management of the company do not own enough of a stake in the company to influence who sits on the board of directors. Shareholders have the right to influence who holds management positions through control over election of board members.
A preemptive right is a privilege that may be extended to certain shareholders of a corporation that grants them the right to purchase additional shares in the company prior to shares being made available for purchase by the general public in the event of a seasoned offering, which is a secondary issuing of stock shares. A preemptive right, also referred to as preemption rights, anti-dilution provisions, or subscription rights, is written into the contract between the stock purchaser and the company, although a few states grant preemptive rights as a matter of law unless specifically negated in a company’s articles of incorporation.
A redemption right is the right of the investors to force a company to repurchase their shares.