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Company stakeholder mapping

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  Employees
  
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  Communities
  
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  Shareholders
  
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  Creditors
  
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  Investors
  
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  Government
  
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  Customers
  

A shareholder or stockholder is an individual or institution (including a corporation) that legally owns any part of a share of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself.

Stockholders are granted special privileges depending on the class of stock. These rights may include:

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  The right to sell their shares,
  
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  The right to vote on the directors nominated by the board,
  
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  The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions,
  
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  The right to dividends if they are declared,
  
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  The right to purchase new shares issued by the company, and
  
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  The right to what assets remains after a liquidation.
  

Stock

Stock certificate for ten shares of the Baltimore and Ohio Railroad Company

The capital stock (or simply stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value.^[1]

Shares

Ownership of shares is documented by issuance of a stock certificate. A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, and other specifics of the shares, such as the par value, if any, or the class of the shares.

Usage

Used in the plural, stocks is often used as a synonym for shares.^[2] Traditionalist demands for the plural stocks to be used only when referring to stocks of more than one company are rarely heard nowadays.

Types of stock

Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.^[4][5] Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK)

New equity issues may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. Often, new issues that have not been registered with a securities governing body may be restricted from resale for certain periods of time.

Preferred stock may be hybrid by having the qualities of bonds of fixed returns and common stock voting rights. They also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend.

Security (finance)

A security is generally a fungible, negotiable financial instrument representing financial value.^[1] Securities are broadly categorized into:

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  debt securities (such as banknotes, bonds and debentures),
  
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  equity securities, e.g., common stocks; and,
  
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  derivative contracts, such as forwards, futures, options and swaps.
  

Securities may be represented by a certificate or, more typically, "non-certificated", that is in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.

Prospectus (finance)

In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors.

Initial public offering

An initial public offering (IPO) or stock market launch is the first sale of stock by a company to the public. It is a type of public offering. As the result of an initial public offering, a private company turns into a public company. The process is used by companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an investment banking firm acting in the capacity of an underwriter to help them correctly assess the value of their shares, that is, the share price.

Reasons for listing

When a company lists its securities on a public exchange, the money paid by investors for the newly issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of investors to provide itself with capital for future growth, repayment of debt or working capital. A company selling common shares is never required to repay the capital to investors.

Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is a key reason many companies seek to go public.

There are several benefits to being a public company, namely:

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  Bolstering and diversifying equity base
  
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  Enabling cheaper access to capital
  
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  Exposure, prestige and public image
  
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  Attracting and retaining better management and employees through liquid equity participation
  
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  Facilitating acquisitions
  
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  Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.
  

There are several disadvantages to completing an initial public offering, namely:

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  Significant legal, accounting and marketing costs
  
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  Ongoing requirement to disclose financial and business information
  
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  Meaningful time, effort and attention required of senior management
  
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  Risk that required funding will not be raised
  
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  Public dissemination of information which may be useful to competitors, suppliers and customers.
  

Taken together, common stock (and sometimes preferred stock) issued and paid plus capital surplus represent the total amount actually paid by investors for shares when issued (assuming no subsequent adjustments or changes).

Shares for which there is no par value will generally not have any form of capital surplus on the balance sheet; all funds from issuing shares will be credited to common stock issued.

Some other scenarios for triggering Capital Surplus include when the Government donates a piece of land to the company.

The Capital surplus/Share premium account (SPA) is not distributable; however, in restricted circumstances it can be reduced:

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  to write off the expenses/commission relating to the issue of those shares;
  
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  to make a bonus issue of fully paid-up shares.