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What are Shareholder Rights?

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  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 02 November 2016
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    Conjecture Corporation
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When a person purchases stock in a company, he or she buys an interest in that business. The ownership of interest is generally accompanied by certain rights, known as shareholder rights. These grant investors the ability to do certain things. Shareholder rights are undeniable rights held by investors. These may arise from government regulation or from a corporation’s decisions. A shareholder can usually find out what his or her rights are by reading a company’s bylaws or its charter. Although shareholder rights may vary from one corporation and one jurisdiction to another, there are some that are considered common, such as the right to vote, to transfer shares, and to sue.

One of the most important shareholder rights is being compensated when a company makes a profit. If a person purchases stock in a company, it is not the company’s option to share or to refuse that person a portion of the earnings. A shareholder is legally entitled to a certain portion. The amount that she is entitled to, however, will vary based upon how much stock she owns and the type of shareholder that she is.

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Shareholder rights may not be the same for everyone who owns stock in a company. For example, compensation rights vary. If a person invests money in a company that files for bankruptcy, all investors do not have equal rights to be paid from the company’s assets. All of the preferred stockholders are entitled to payment before common stockholders begin to receive any compensation.

If it decides to, a company can grant a wide range of shareholder rights. There are some, however, that are considered standard. To begin with, shareholders are commonly entitled to vote. Their voting rights may not entitle them to participate in every decision, but they should be allowed to indicate their choices on certain major issues that affect a company’s operation.

The ability to inspect company documents, such as accounting records of profits and losses, is another of the common shareholder rights. Shareholders also commonly have the right to sue the companies that they invest in. It may seem strange that a person would invest in a company and then risk threatening its financial health with a lawsuit and negative publicity, but sometimes shareholders do find it necessary. These cases often result from instances where the company has acted in a way that threatened or harmed shareholders' profit potential.

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