What are the rights generally granted to common stockholders
The rights of stockholders are different in different states and countries. In some countries, they maybe more developed while in others, they may be less developed. Any interested stockholder must first of all research on and understand the corporate governance policies of the company they are interested in. These policies are the determinants of benefits the stockholders are entitled to, including stockholder rights.
Stockholders have the rights to vote on major issues. This includes election of leaders and other vital issues such as liquidation and mergers. This is done during the annual meetings of the company. Small investors may vote through proxy while big investors may vote directly. The added privileges in voting however call for a greater price per share.
Stockholders have a right to claim on assets. In case the company plunges into bankruptcy, their payouts in US are determined by the US Securities and Exchange Commission bankruptcy laws. Stockholders unlike bondholders however lose out in case of bankruptcies but gain greatly when the company thrives.
Stockholders have the right to sue inappropriate acts in the company. This is usually in the form of class-action law suits. An example is the year 2002 when WorldCom faced a major shareholder class-action lawsuit as it had overstated its earnings thereby giving the stockholders a false impression of good financial health (Deborah et al., 2002).
The stockholders also have a right to ownership of part of the company. When the company thrives, stockholders benefit due to additional assets and increase in the value of shares as the stock prices increase. Stockholders can thus claim on company profits in terms of dividends.
Stockholders are also a priority when it comes to buying extra shares of the company. They can buy, sell or divide their profits as they wish. Stockholders with common stock are at liberty to share profits with other stockholders in equal measure to the number of shares owned. Thus stockholders can transfer ownership by trading their stock on exchange.
Lastly, stockholders have a right to company’s disclosure. They are entitled to carrying out inspections on company records. However this is more crucial for private companies as public companies are mandated to make public financial reporting.
In conclusion, it is important for common stockholders to be informed about their rights and what they are entitled to in the company. This works in eliminating particular risks that could be faced without the knowledge on these rights.
Deborah Solomon, Jared Sandberg and, Susan Pulliam. (2002, Jul 02). WorldCom angers
regulators as accounting scandal widens. Wall Street Journal. Retrieved from http://search.proquest.com/docview/398804963?accountid=45049; http://search.epnet.com?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&rfr_id=info:sid/ProQ%3Aabiglobal&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=unknown&rft.jtitle=Wall+Street+Journal&rft.atitle=WorldCom+Angers+Regulators+As+Accounting+Scandal+Widens&rft.au=By+Deborah+Solomon%2C+Jared+Sandberg+and+Susan+Pulliam&rft.aulast=By+Deborah+Solomon&rft.aufirst=Jared+Sandberg+and+Susan&rft.date=2002-07-02&rft.volume=&rft.issue=&rft.spage=A.1&rft.isbn=&rft.btitle=&rft.title=Wall+Street+Journal&rft.issn=00999660; http://www.emeraldinsight.com?genre=article&sid=ProQ:&atitle=WorldCom+Angers+Regulators+As+Accounting+Scandal+Widens&title=Wall+Street+Journal&issn=00999660&date=2002-07-02&volume=&issue=&spage=A.1&author=By+Deborah+Solomon%2C+Jared+Sandberg+and+Susan+Pulliam