It’s a bit like buying a house to rent it out
It's to make money out of it, rather than to live in it. Because of this, one may decide to have more rooms rather than a larger living room (since the more bedrooms a home has, the higher it can rent for). The purpose of the purchase is not for personal enjoyment, but rather for financial gain. Similarly, a shareholder invests in companies for the sake of returns, and their decisions reflect this interest.
What are shareholders?
Owning part of a company through a share of stock (or fractional shares) makes one a shareholder. Shareholders have a financial interest in the enterprise, and focus on its profitability. As a shareholder one also acquires benefits related to the performance of the companies. These vary, but usually include the right to vote on corporate decisions, such as mergers and nomination of directors. If a shareholder has a lot of stock they can also become part of the board of directors (yes- it’s as fancy as it sounds). In addition, once one owns shares s/he can sell them or keep them and receive dividends on the company’s profits as well as gain exclusive access to information regarding the company. This all makes sense, as your money is on the line and you just receive the power to make sure the investment comes to fruition. The aim of a shareholder is to ensure that the shares increase in value, along with the expected dividends (this only works for public companies, but more on that later).
What are the types of shareholders?
Shareholders can be individuals or companies which invest in enterprises for monetary returns. These are subdivided in two groups: common shareholders and preferred shareholders. Both come with different responsibilities and benefits, but they both are in it for the money. Because of this, a shareholder can sell their shares for profit and reinvest the proceeds in other companies. The nature of being a shareholder is tied to the profitability of the investment, and it is not uncommon for a shareholder to own shares of competitors within the same industry. And we won’t say anything, but you can imagine that a shareholder’s interests might not always align with the best long-term interest of the company they invested in...
What came first: the shareholder or the stakeholder
You can see the shareholder as someone who buys a home to renovate and sell it, as opposed to a stakeholder, who buys a house for his children and has more of a long-term interest. All shareholders are stakeholders, but not all stakeholders are shareholders. Shareholders are a type of stakeholder - they are there for the profit. Because of this it is not uncommon for shareholders and stakeholders to disagree as they might have conflicting interests regarding the company. A shareholder holds a stock for its monetary value - if he wants, he can just sell it and buy another one. Let’s think in terms of jewelry. If someone bought a nice ring, but then decides another one is a better match, they can simply sell the first one and buy the other. That's a shareholder. Stakeholders, on the other hand, inherited their ring from a family member, and are therefore more invested in it. They care more about the long-term value and lifespan of the investment, whereas shareholders mainly worry about the immediate value they can gain from their investment.
Why will your future self thank you?
Because...cash. Being a shareholder in a company comes with perks such as getting dividends (for dividend-paying stocks only), having a voice in the decision-making process, and - most importantly - having the chance to see one’s investments appreciate in value (so that you can cash out on the investment when the time calls for it). We know: this sounds kind of expensive. But did we mention that you don’t need a lot of money to become a shareholder? Thanks to Bits of Stock™ you can now get stocks with every purchase you make.
- A majority shareholder: one shareholder who owns more than 50% of a company (the others are called minority shareholders). We never said the stock market was a creative industry when it comes to terminology.
- Shareholders are not just for the Stock Market. A guy from Portland sells shares of himself, and his shareholders get to decide on his big life decisions. Now - that’s a good idea for an interactive TV show!
- Shareholder perks used to be more of a thing back when investors still held a minimum of one share of stock (in a certificate form_. A few companies still offer these little extras, which can range from product discounts to small gifts.