Rights of Common Stockholders
The common stockholders are the real owners of the company, and as such, they have certain rights and privileges. They also, receive voting rights regarding other company matters such as stock splits and company objectives. These rights and privileges of common stockholders are established by the term of the charter and laws of the state in which the company is registered. Common stockholders have some specific rights as individual owners. Some important rights are as follows:
- Right to Share Income And Assets
Common stockholders have the right to share company’s earnings equally on a per-share basis. In other words, they have a right to receive the appreciated value of their shares as profits increase, expanding assets and enhancing stock price value. Thus, common stockholders are residual claimants of the firm’s income and assets.
- Control of the Firm
Common stockholders control the firm through their right to elect the company’s board of directors, which appoints management. When you own common stock in a company, you’re given the right to see the company’s financial records and notes from shareholder meetings. In a small firm, the largest stockholder typically holds the position of president or chairperson of the board of directors. In a large publicly owned firm, the managers have some stock, but their personal holdings are insufficient to provide voting control.
- Preemptive Right
Preemptive right is a privilege offered to existing shareholders for buying a specified number of shares of the company’s stocks before the stocks are offered to outsiders for sale. This gives common shareholders the right to buy new issues prior to the public offering. Each stockholder receives one right for each share of stock owned. If the company sells new shares to the existing stockholders, it is called right offering.
- Voting Right
Common stockholders can attend at an annual general meeting to cast vote or use a proxy. A proxy is a legal document given one person the authority to cast vote and represent on behalf of others. Most common shareholder voting rights equal to one vote per share owned, resulting in greater influence from shareholders who own a larger number of shares.