Shareholders provide financial support within a company. By purchasing shares or stocks, they help to finance company development and expansion. Technically, they own a percentage of the company. A small business may have only one shareholder who owns the entire company, while a publicly traded company may have thousands of shareholders that own only a tiny percentage of the company. In the latter case, pension funds, mutual funds, and hedge funds may comprise the majority of shareholders. Although the role of shareholders varies according to the size of the company and the type of shareholders, the following are some of the typical roles and responsibilities that shareholders may have.

Providing Funding

The main role of shareholders is to raise funds for the companies. Many companies choose to go public in order to increase their sources of funding. Ownership is offered to new investors. Private companies are also owned by shareholders, but often only a select group or institution. Startup companies need to attract shareholders, in this case known as venture capitalists, in order to get off the ground. Shareholders have the right to sell their stake in the company according to the conditions of the bond or stock they purchased.

Influencing Company Operations

Shareholders can have both direct and indirect functions in the operations of business. Often, this depends on how large the company is and whether it is publicly or privately traded. Shareholders may be required to vote to elect the directors on the board. The directors are responsible for hiring and supervising senior executives, including the chief executive officer (CEO) and the chief financial officer (CFO). Shareholders that have a stake in the company through stocks play a more indirect, but nevertheless important role. Investors choose to purchase stocks that will increase in value over time. In order to help the company’s stock increase in value, executive managers must ensure that the company exceeds its own sales and profit expectations. Companies that do so may be asked to return some of the money to shareholders.

Governing the Company

Companies that are public as opposed to private are required to answer to their shareholders. As a result, these companies are likely to have a government in the form of a board of directors. The board of directors includes a chairman, secretary, treasurer, and several other members who vote on company decisions on behalf of shareholders. Public companies may also have policies to ensure that business ethics are upheld and decisions are made in the best interest of shareholders. These companies are also required by law to disclose information in a timely and clear manner to shareholders. Executives who sign off on company documents are accountable for any mistakes.

Quick Summary

Shareholders are individuals or institutions that own a percentage of a company. Both public and private companies have shareholders. Shareholders may play a more direct role in company operations in a private company and a less direct role in company operations in a public company. Public companies often elect a board of directors to represent shareholder interests. The board of directors make decisions for the company with the best interest of shareholder in mind.