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What Is a Common Shareholder?

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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 09 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A common shareholder is anyone who holds common stock in a company, giving the shareholder certain rights to participate in the company’s business. Most, but not all, common shareholders are able to participate in voting in such matters as board elections, policy changes and on the question of whether a share should split; these shareholders also can look at the company’s records and sue the company for fraudulent business practices. Some common stock comes in different classes, with each class giving the common shareholder different rights in the company. Unlike preferred shareholders, common shareholders are paid a variable dividend, which may be much higher than preferred shareholders if the business is doing well. One of the riskiest aspects of being this type of shareholder is that, if the company goes bankrupt, these shareholders are paid last.

Nearly all common stocks give their shareholders voting rights and many other rights in the company, regardless of how much stock the common shareholder has. These shareholders can vote on nearly all corporate issues, because the stockholder owns part of the company. These shareholders also have the right to look at the company’s records and books, and can open legal disputes if they notice any illegal activity.

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Most common stocks are sold in one class, but some companies may offer different stock classes. For example, one class may have fewer voting rights but higher dividend payments than another class. Before a common shareholder purchases any common stock, he or she should check the rights. If the stockholder is not interested in voting, then getting stocks with the highest dividend payment will be best.

There are two primary types of stock: preferred and common. With preferred stock, the preferred shareholder gets a fixed dividend payment; this means regardless of how the company is doing, the shareholder will get the same payment. Common stocks are riskier, because the common shareholder receives a variable payment depending on how the company is doing. If the shareholder buys common stocks with a powerful company, then the payouts will generally be higher than preferred stock, but this is not guaranteed.

Even riskier than the variable payouts is the common shareholder's priority with bankruptcy payments. If the company goes bankrupt, it pays all its debtholders, bondholders and preferred shareholders first. If any money is left after this, then the common shareholder will receive a payout, but this is entirely dependent on whether any money is remaining. This means some or all common shareholders may receive limited payment, if any.

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