Business
Shareholder
A shareholder is an individual, company, or institution that owns shares in a corporation. Shareholders have ownership rights in the company and are entitled to a portion of its profits, as well as the right to vote on certain company decisions. They also bear the risk of financial loss if the company performs poorly.
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9 Key excerpts on "Shareholder"
- Jean Jacques Du Plessis, Anil Hargovan, Mirko Bagaric, Jason Harris(Authors)
- 2014(Publication Date)
- Cambridge University Press(Publisher)
Mallin includes Shareholders as part of her concept of ‘stakeholder’, but deals with Shareholders separately from all the other constituents that are also stakeholders. She defines ‘Shareholder’ as ‘an individual, institution, firm, or other entity that owns shares in a company’. 18 As Mallin appreciates, however, the reality of shareholding is more complex than this definition suggests, once beneficial ownership and cross-holdings are considered. Mallin treats Shareholders differently from other stakeholders for two reasons: ‘[F]irst, Shareholders invest their money to provide risk capital for the company and, secondly, in many legal jurisdictions, Shareholders’ rights are enshrined in law whereas those of the wider group of stakeholders are not.’ 19 Mallin goes on to say that a rationale for privileging Shareholder interests over the interests of other stake- holders is that they are: the recipients of the residual free cash flow (being the profits remaining once other stakeholders, such as loan creditors, have been paid). This means that the Shareholders have a vested interest in trying to ensure that resources are used to maximum effect, which in turn should be to the benefit of society as a whole. 20 Justice Owen, in the ‘Report of the HIH Royal Commission’ (Owen Report), articulates a similar conception of corporate governance when explaining the ‘organs of governance’: [P]rimary governance responsibility lies with the board of directors. In formal terms the directors are appointed by, and are accountable to, the body of Shareholders . . . The role of the Shareholders is to exercise the powers that are ........................................................................... 18 Ibid. 49. 19 Ibid. 20 Ibid. Stakeholders and CSR 35 reposed in them by the Corporations Act and the constitution of the corporation. The perceived wisdom is, I think, that Shareholders play a passive role as the objects of corporate governance rather than an active role as part of it.
eBook - ePub- David Chandler(Author)
- 2020(Publication Date)
- Routledge(Publisher)
20Shareholders own shares – a legal contract between the investor and the firm similar to employees, suppliers, and others who also hold legal contracts with the firm. What is becoming increasingly clear is that, while stockholders invest capital in firms (in the same way employees invest time, effort, and skills), they have no greater claim to ownership of those firms than other stakeholders.21 And, there is a growing number of commentators, such as Martin Wolf in the Financial Times, who believe their claim is significantly less than other stakeholders:The economic purpose of property ownership is to align rights to control with risk-bearing. The owner of a corner shop should control the business because she is also its chief risk-bearer. Risk, reward and control are aligned. Is it true that the chief risk-bearer in [a publicly-traded corporation] is the Shareholder? Obviously not. All those who have stakes in the company that they are unable to hedge bear risks. The most obvious such risk-bearers are employees with firm-specific skills. … Shareholders, in contrast, can easily hedge their risks by purchasing a diversified portfolio.22Essentially, being a Shareholder entitles the owner of that share to a few specific and highly limited rights: they are able to vote (although the practical application of Shareholder democracy is weak and narrow); they are able to receive dividends (only as long as the firm is willing to issue them); and they are able to offer their share for sale to a third-party at a time of their choosing. These rights constitute a contractual relationship between the firm and the Shareholder, but do not constitute ownership. As noted by Eugene Fama, one of the originators of the agency theory of the firm, “Ownership of capital should not be confused with ownership of the firm.”23
eBook - ePubProperty in Work
The Employment Relationship in the Anglo-American Firm
- Wanjiru Njoya(Author)
- 2016(Publication Date)
- Routledge(Publisher)
19Shareholder and Stakeholder Owners
Because Shareholders are often referred to as ‘owners’ of the firm the framework of corporate governance is premised on the idea that managers act on behalf of and are accountable to the Shareholders.20 At a general level the argument that the corporation belongs to its Shareholders may be readily appreciated. The Companies Act 1985 defines the members of the company as its Shareholders.21 It appears logical that the Shareholders’ purchase of shares in the company gives them an ownership stake within it. Shares are a valuable, indeed arguably the most valuable, form of property in the modern economy, having long surpassed the importance of land ownership.22 The property rights theory of the firm defines ownership as ‘possession of “residual” control rights, the rights to make all decisions (at least those that have not been delegated to others by contract) and receive whatever is left over after all payments specified by contract have been paid’.23 Drawing from this definition it seems reasonable to describe Shareholders as the firm’s owners, as all control rights vest in them other than those they delegate to managers to exercise on their behalf. In contrast to claims of Shareholder ownership, it is more difficult to discern the basis of the employees’ claim to ownership. After all it could be said that the workers are simply hired by the company to do a specific job for which they are paid, and that their interest in the firm stops there. Employees are deemed to be outsiders with whom the firm deals at arms’ length through the mechanism of contract: ‘a firm is a fairly well-defined entity whose interests are simply the interests of its owners. By this assumption, employees are contracting with the firm but are not, themselves, part of it’.24
eBook - PDFSustainable Success with Stakeholders
The Untapped Potential
- Sybille Sachs, Edwin Rühli, Isabelle Kern(Authors)
- 2009(Publication Date)
- Palgrave Macmillan(Publisher)
With a publicly owned corporation, however, there is a separation of ownership and control. This separation is prob- lematic because the profitability demands of the Shareholders and the interests of management often contradict each other. External share- holders are often primarily interested in a high rate of return and maintaining their investment. Managers are more interested in the possibility of developing professionally, and maybe also in the power and prestige of their position plus the amount of their bonuses. In the context of corporate governance, coming to terms with these con- flicting aims is often a main concern. Within the chain of command, one needs to clarify how the influence of Shareholders is to be reg- ulated, how the management body is to be constituted and what legal regulations are necessary. On an international level, examples of this are the legally determined US Sarbanes–Oxley Act (2002) and the 2002 OECD Guidelines (Organisation for Economic Co-operation and Development) as a code of conduct for ‘Best Practices of Good Corporate Governance.’ 50 Sustainable Success with Stakeholders In this chapter, with this background in mind, we want to dis- cuss the importance of Shareholder engagement. In doing so from a stakeholder perspective, the Shareholder in the context of basic legal principles 5 should be increasingly bound into strategic discussions and understood as a genuine stakeholder. The pay back An approach concerned with creating and measuring value creation is value-based management. The basic of value-based management is the Shareholder value, meaning the dividends and the share price. From this perspective, projects and also whole strategies are judged on the basis of the economic benefit they generate for the providers of capital. If there is a choice among several strategic alternatives, the choice is made for the one promising the greatest increase in Shareholder value.
- Ernest Lim(Author)
- 2019(Publication Date)
- Cambridge University Press(Publisher)
A share has been said to be ‘objects of property which are bought, sold, mortgaged and bequeathed’. 31 To add to the confusion, it has been asserted that shares ‘confer proprietary rights in the company though not in its property’. 32 This view suggests in a contradictory fashion that Shareholders are owners of the company, but they do not own its assets. The second manifestation of the disregard for the separate legal per- sonality rule is that the interests of the company have been equated with those of the Shareholders as a whole. 33 If the company is a real entity that 28 [1897] AC 22. 29 Lee & Lee’s Air Farming [1961] AC 12. 30 Paddy Ireland, ‘Corporate Schizophrenia: The Institutional Origins of Corporate Social Irresponsibility’ in Nina Boeger and Charlotte Villiers (eds), Shaping the Corporate Landscape (Hart 2018) at ch 1. 31 Paul Davies and Sarah Worthington, Gower Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) at [23–3] 789. 32 HM Commissioners of Inland Revenue v Laird Group plc [2003] UKHL 54 at [35] (Lord Millet). 33 Paddy Ireland, ‘Limited Liability, Shareholder Rights and Corporate Irresponsibility’ (2010) 34 Cambridge Journal of Economics 837. i. formal power: voting 109 is separate and distinct from its Shareholders, directors and stakeholders, it follows that the company ought to have interests that are distinct from those of these people. 34 It is incoherent to claim that on the one hand, regarding the issue of in whose interests or for whose benefit the com- pany should be run, the company and Shareholders’ interests are effec- tively one and the same. But on the other hand, regarding the issue of corporate liability, the company and Shareholders are separate and dis- tinct entities with separate and distinct obligations and interests. English law (both common law and statutory law), however, still regards the company’s interests and Shareholders’ interests as largely synonymous.
eBook - ePubShareholder Participation and the Corporation
A Fresh Inter-Disciplinary Approach in Happiness
- James McConvill(Author)
- 2020(Publication Date)
- Routledge-Cavendish(Publisher)
23I respectfully disagree with both views. Shares do in fact constitute a proprietary interest in the corporation, with the corollary being that Shareholders are the owners of the corporation, and the reasoning behind this view is neither complex or sophisticated — it simply reflects what should be an indisputable fact: a corporation, like a house, has a distinct legal form,24 and while a house is a tangible entity comprised of (among other things) bricks and mortar, a corporation is an intangible entity, existing only on paper, and built not from materials and labour, but from a collection of shares in the name of particular individuals or organisations. Thus, while it is undisputed, both in the general community and at law, that the person who owns the house, by connection owns the bricks used to build the house, so it should be an undisputed fact that the individuals who own the shares of a corporation are the owners of the corporation.It can be presumed that the issue that stands in the way of commentators being able to accept that shares do in fact meet the description of property, just like a house, boat, car or corporate governance textbook, aside from shares having an intangible quality, is that unlike (it is also presumed) other things that we traditionally associate with the concept of property, the rights of Shareholders in relation to their shares are narrowly cast and quite dependent on a third party — the board of directors. While it may be said that Shareholders own the shares, and hence the corporation, they do not have any rights over the assets of the corporation — all they are entitled to is a share of the company’s profits via dividend payments — and then only when the directors consider that it is appropriate that these payments are made.25 It is in this sense that shares are referred to as ‘autonomous’.26
eBook - PDFStrong Managers, Strong Owners
Corporate Governance and Strategy
- Harry Korine, Pierre-Yves Gomez(Authors)
- 2013(Publication Date)
- Cambridge University Press(Publisher)
At a minimum, the latter type of Shareholder has a more multifaceted relationship with the firm than the former and therefore has multiple interests to satisfy. 5 Moreover, there are differences even within these two subgroups: thus, institutional investors like pension funds differ among themselves in terms of which financial variables are important to them, 6 and the interests of those Shareholders with a business relationship to the firm differ according to the nature of the business relationship. Therefore, if we wish to draw a nuanced picture of how Shareholders behave with regards to strategy, we cannot maintain the assumption of uniform interests among Shareholders. Shareholders who only have a shareholding relationship with the firm will be concerned about questions such as liquidity and risk, in addition to return. Shareholders who also have a business relation- ship with the firm will include such questions as the satisfaction of business objectives (for Shareholders who are also customers or sup- pliers), the stability of employment prospects (for employees), the maintenance of corporate values (for founder families and founda- tions), and the continuity of the firm in their objective functions, alongside the financial considerations. Instead of uniform interests, we have in fact a veritable plethora of different and apparently dis- tinct interests to consider in analyzing how Shareholders will respond to changes in strategy. Change in ownership • 21 We propose that the different Shareholder concerns can be meaningfully grouped according to the standards Shareholders use to measure the performance of their holdings. Whereas some Shareholders measure the performance of their holdings relative to external (market-based) benchmarks, others apply standards of their own definition.
eBook - ePub- Susan McLaughlin(Author)
- 2018(Publication Date)
- Routledge(Publisher)
7 Shareholders, shares and share capital AIMS AND OBJECTIVES After reading this chapter you should be able to: ■ Understand the legal nature of a share and the rights and liabilities of a Shareholder ■ Explain the concept of a class of shares ■ Distinguish equity and non-equity shares ■ Discuss what is and what is not a variation of rights ■ Use the language of share capital accurately ■ Discuss why and how a company may increase its share capital ■ Discuss the role of pre-emption rights and when they are applicable ■ Identify which companies may offer shares to the public and when a prospectus is required 7.1 Introduction This chapter is divided into six sections. The next section examines the fundamental financial entitlements of ordinary Shareholders and the corresponding risk of losing the value of their investment in a company. The third section examines the legal nature of a share, the rights attached to different classes of shares and variation of class rights. The fourth section examines the language and structure of the share capital of a company and section five examines how to increase a company’s share capital. Reducing a company’s share capital is a far more problematic step than increasing it and is dealt with in the next chapter, as part of our study of capital maintenance. The final section outlines offering shares to the public. 7.2 Shareholders 7.2.1 Who is entitled to the residual wealth of a company? A company operating a business for profit owns the business assets. In Salomon v A Salomon and Co Ltd [1897] AC 22 (HL), the company owned the shoe manufacturing business. A company that operates a successful business makes profits and those profits belong to the company. Profits may be retained and re-invested to expand the business. This increases the value of the company’s business assets and allows the company to generate bigger profits. If this happens, the company becomes wealthier. Yet the company is an artificial person
eBook - PDF- John Parkinson, Gavin Kelly, Andrew Gamble, John Parkinson, Gavin Kelly, Andrew Gamble(Authors)
- 2001(Publication Date)
- Hart Publishing(Publisher)
The three main interest-holders in any parcel of shares are: • the registered holder of the shares, that is, the person/entity entered on the company’s register of members. The registered holder is referred to in the Companies Act 1985 as a “member” of the company, 29 e.g., where a custodian holds shares on behalf of a client, the custodian is the registered holder. It is common to refer to shares held by custodians as being held by “nominees”; this reflects a structure under which a custodian holds shares on a bare trust for its client; Institutional Investors: What are their Responsibilities? 201 27 M Faccio and M A Lasfer, “Do Occupational Pension Funds Monitor Companies in which They Hold Large Stakes?”, (2000) 6 Journal of Corporate Finance 71. 28 J Franks, C Mayer and L Renneboog, “Who Disciplines Management in Poorly Performing Companies?”, Working Paper (London Business School, 2000). 29 See, e.g., Companies Act 1985, s 22. • the beneficial owner of the shares, e.g., where the registered holder is a trustee, it holds the shares on trust for the beneficiaries of the trust, who are (collec-tively) the beneficial owners of the shares. Even where the registered holder is a custodian appointed by the trustee, the shares are still—ultimately—held on trust for the beneficiaries of the trust; 30 • the holder of the voting rights attached to the shares, e.g., where the trustee of a pension scheme engages a fund management firm to manage the scheme’s equity investments, the fund management contract typically provides the fund manager with the power to give voting instructions to the custodian (the reg-istered holder), subject to any overriding instruction from the trustees. 31 Here, the fund manager holds the voting right attaching to the shares. 32 Sometimes all three interests are held by the one person/entity, but, as shown below, in the case of institutional share ownership it is more common for at least two different parties to be involved.
