You might receive an invitation in the mail to the annual meeting of a company that you have invested in. This mailer isnt just junk mail. This invitation gives you the ability to participate in corporate decisions and get the full investor experience, regardless of how much stock you may own in a company.
TL;DR
- Shareholders are partial owners of companies they invest in
- Owning shares may entitle you to have a say in how a company runs by voting
- You can vote even if you cannot physically travel to the meeting where voting takes place
- The outcomes of the votes impact a companys operations, profitability and future decisions
Learn more: How to pick a stock
Defining key terms about shareholders:
- Shares: Shares are units of equity ownership interest in a corporation that function as a mechanism for equitable distribution of residual profits. The amount of ownership interest is sometimes referred to as stock in a company.
- Shareholder: Publicly owned companies are owned by shareholders either directly or indirectly. The number of shares owned indicates the proportion of equity ownership the individual has with the company. Shareholders may also enjoy capital gains if the value of the company rises. Shareholders may receive dividends if any residual profits are declared.
- Registered Owner: A registered owner is sometimes also known as a record holder. This is a shareholder who holds shares directly with the company.
- Beneficial Owner: A beneficial owner owns shares indirectly through their bank or broker-dealer. The majority of investors in the U.S. are beneficial owners.
- Dividends: Money paid out from a companys earnings. It is paid out in proportion to the number of shares owned.
- Capital Dividends: A payment, also known as return of capital, to investors drawn from paid-in-capital or shareholders equity. Usually only paid if there is a required dividend payment that the company cannot cover from its earnings. They can be a harbinger of looming trouble from a business not generating expected earnings.
It is common for public companies to use different types of shares to provide different rights to the shareholders. These different types of shares are called classes of shares. Based on the class of shares, rights may vary in terms of the right to attend certain meetings, voting power and entitlement to dividends or capital. By having the different classes of shares it makes it easy for investors to know what theyre receiving in return for their investment, attracts certain investors, causes dividend income to go only to certain shareholders, can either remove or amplify certain shareholders voting power, and can motivate staff to stay with the company. Typical classes of shares include:
- Ordinary share: a share entitling its holder to dividends that vary in amount and may even be missed, depending on the fortunes of the company; also known as common stock.
- Deferred share: a share that does not have any rights to the assets of a company until all common and preferred shareholders are paid. It may also be a share issued to company founders and private investor groups that restricts their receipt of dividends until dividends have been distributed to all other classes of shareholders.
- Non voting share: a share that does not give the holder any voting rights but still entitles the holder to a portion of the company’s capital. Non-voting shares are mostly issued to employees or to family members of the main shareholders.
- Redeemable share: a share that can be repurchased by the issuer via a built-in call option on or after a predetermined date or event.
- Preference share: a share which entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividends.
- Management share: a share held by officers or directors of a company receiving no dividend until a specified amount has been paid on the common stock but receives a large share of residual profits.
- Alphabet share: a share that is part of a separate class of common stock that is tied only to a specific subsidiary of a corporation. Alphabet shareholders sometimes have different voting rights from shareholders of the parent companys stock.
What actually is shareholder voting?
Shareholder voting is a major right of being an investor. It gives you the power to participate in electing the corporations directors and to impact other issues that are being voted on by expressing your views and placing your vote. These votes occur within the context of a formal meeting. From there, voting is much as you would expect in any formal meeting where the issues are raised and then votes are cast.
Since most shareholders do not live in the same city as the annual meetings of all companies they invest in, most vote via proxy without having to be present in person. This means that you are authorizing someone else to vote according to your wishes. Registered owners cast votes directly with the company or via a proxy that usually the members of company management enact. Beneficial owners receive a voting instruction form that they send to their brokerage firm or financial institution to direct how to vote for their shares.
How often do shareholders vote?
Shareholders generally vote only at the required annual meeting of a corporation. Corporations can also call special meetings as needed to run the company. Generally in the U.S. public corporations hold their annual meetings between March and June each year. The date of the meeting is set as the record date meaning that this is the date that the votes go on record. As a shareholder, you will receive notice of the record date. This notice will include an invitation to the annual meeting and instructions on how to vote in one of three forms:
- a notification that proxy materials are available online and how to locate them
- a package that contains a proxy card, voting instructions, annual report, and proxy statement
- a package that contains an annual report and information statement, and information for attending the meeting in person
What are shareholders voting on?
An annual meeting is often the only time that company executives and directors will interact with everyday shareholders. Typically at this meeting, all attendees will hear about the companys current financial statements, ratify decisions made by the board of directors, hear speeches about the overall vision of the companys goals for the upcoming year and also have an open floor period where shareholders are allowed to ask questions. Then shareholders will be able to vote on who will be the members of the board of directors for the upcoming year and cast votes on other issues on the floor such as approving mergers, acquisitions, payment of dividends, stock compensation plans, executive compensation plans, integral corporate structure changes and stock splits. When there is a special meeting, shareholders are voting on matters such as the removal of an executive or how to respond to an urgent legal or business matter.
Why should I vote as a shareholder?
Voting impacts the value of your investments because it is how you impact who is on the board of directors and there will be times when you can weigh in on various issues the board is facing as well. The directors of the corporation are key decision makers. As a shareholder, you are basically an owner of the company and you will benefit its success. Pay attention to how youre permitted to vote for each company that you invest in. At some companies, you will receive one vote per share if you own a class of shares that have voting rights. At others, each shareholder of a certain class receives one vote regardless of the number of shares.
Impacting the composition of the board can make a difference between having new, talented blood on the board instead of only the friends of existing directors. Sometimes at annual meetings, other non binding proposals and issues can come up for a vote – things such as compensation practices or other incentives for the company executives can also shape the functioning of the business. Also, there are certain decisions that could benefit a companys management but not the shareholders. For example, when contemplating being acquired by another company, this may benefit shareholders in terms of providing new product lines or more established distribution channels so that the company can continue growing and being profitable. However, executives who view being acquired as a guarantee that they will lose their job will not view the prospect of an acquisition as favorably.
One vote per share will give you a greater say in decisions. More people should care about voting as a shareholder because it provides a way for you to have a direct impact – whether you have one vote or multiple votes – on who is running a public corporation and how they run it. Ensuring the future growth and longevity of your investments will grow your net worth.
Bottom line
Figuring out what stocks to buy and when to buy them can be difficult – especially as a new investor. As you grow your portfolio, you will continue to learn about rights you have as a shareholder with the companies youve chosen to invest in. Staying informed enough to vote in annual and special meetings will mean that you are on the right path.
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