Stockholders: Definition, Powers, Rights & Activism

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  • 1:23 Kinds of Stockholders
  • 2:35 Stockholder Objectives
  • 3:54 Separation of Powers
  • 4:44 Shareholder Activist
  • 5:36 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
In this lesson, you will learn the definition, types and powers of stockholders. In addition, stockholder rights will be highlighted along with the introduction of the recent business influence of stockholder activism.

Stockholder Definition

Do you know the answer to this simple question? Who is the owner of a public company? The answer would be any stockholder, or any person or business that owns at least one share of a company's stock.

Stockholders are also known as shareholders, and they are the risk takers and supporters of businesses. If a company they invest in makes a profit, then they also have a chance to make a profit as well. On the other hand, if a company does poorly, they will also have to face a loss.

Eddie is learning all about stockholders for his economics class. He was assigned a project to purchase one share of a stock to get an understanding of what it means to be a stockholder. Eddie's project will provide you the definition of a stockholder and identify the kinds of stockholders, their objectives, the separation of powers and their legal rights and protection. In addition, the lesson will touch on the idea of shareholder activism.

Eddie has chosen to purchase one share of stock for Pear Products, a high technology company, at a cost of $123. He also was able to spend time at Pear Products' management, where he gleaned helpful information about how the company views stockholders. Let's take a look at his class project.

Kinds of Stockholders

Eddie's project illustrates that there are two kinds of stockholders. The first type is a common stockholder in which a shareholder purchases common stock and is able to vote to elect the board of directors. Eddie has purchased Pear Products common stock, so he has been able to vote on issues, such as stock splits, where a company splits current stock into multiple shares. In fact, during the time of the project, his stock split into two shares. In addition, Eddie received dividends that were declared by Pear Products and amount to quarterly payments paid to the shareholders based on profits.

Eddie did share with his class that he is ranked unfortunately behind preferred stockholders by Pear Products. Preferred stockholders receive a steady dividend before a common stockholder. This worries Eddie because if Pear Products has financial difficulties in the future, then he will not get his money back until preferred stockholders receive their money first. Eddie explains that although preferred stockholders are first in line to get paid, they cannot vote on any company issues.

Stockholder Objectives

Eddie's objective for purchasing a share of Pear Products was to make a profit. He explained to the class that there are four specific types of stockholder objectives that include short-term profit, long-term profit, strategic influence and minimizing of risk.

Eddie felt that he was initially going to be interested in just a short-term profit objective, as Pear Products was known to produce blockbuster products. After much consideration, Eddie changed his objective to long-term profit. He believed they were the leader in technology, and his one share could end up very profitable years from now.

During his tour of Pear Products, he met some investors who maintain large shares of the company so they can exert their strategic influence, or affect policy changes within the firm. Eddie revealed that his one share would not put him in that position of influence.

Eddie also had an objective to minimize risk to his investment. This is when a person invests in stock that will likely have a good return with minimal chance of a loss. He felt that although a Pear Products share was expensive, he would have a safe, sound investment with minimal risk in both the short- and long-term.

Separation of Powers

Eddie's tour of Pear Products gave him firsthand knowledge about how shareholders, managers, board of directors and employees all have separate powers that act as checks and balances within the organization. The board of directors is focused on protecting the rights of the shareholders. They have the power to fire top executives and ensure the development of excellent replacements.

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