Essentials of Corporate Governance

Chapter 3. Shareholders

After reading this chapter, you will be able to

• Understand what shareholders are and their role in a corporation

• Understand the basic rights of shareholders

• Understand the duties that the board of directors has to shareholders

• Understand the types of ownership

• Understand the importance of shareholder meetings

Shareholders purchase stock within a corporation and are the legal owners of that corporation’s assets. This is a unique feature that corporations have in comparison to many other companies: The owner does not run the company.

There are several consequences of the corporate structure and its segregation of ownership from operation. This chapter explores what it means to be a shareholder as well as the unique factors that contribute to the positions, rights, responsibilities, and risks.

The discussion relates to issues that include information disclosure, board elections, shareholder meetings, and the fiduciary duties owed to stock owners.

Ownership and Responsibility

As the legal owners of the corporation, shareholders are entitled to secure their investment by participating in the company’s activities, although their involvement is limited. Shareholders are not involved in the operations of the corporation, except through their election of the board of directors and voting on proposals. Additionally, those who own stock, although technically they have purchased a portion of the company’s assets, have no access to those assets. Instead, the real value of the stocks ...