What Rights Do Shareholders Have In The US?

Whether you own a single share or a million shares in a business, you have rights that are protected under US laws. Before you decide to buy shares for the first time, you need to know what rights you will have as a shareholder. Here are the 4 key rights you need to know.

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Sharing In The Profits

As a partial owner of a business, shareholders have a right to a share of any profits that business makes. Shareholders will receive a slice of the profits that is proportional to the number of shares that they own – the more shares you own, the more of those profits you are entitled to.

As well as sharing in the profits that a business makes, shareholders can also receive money through dividend payments. It is up to a company’s board of directors to declare a dividend for a particular period. When this happens, shareholders will receive a dividend payout that is again proportional to the number of shares they own.

It should be noted that dividends are not guaranteed. If, for example, a business goes into liquidation between a dividend being announced and the date it is due to be paid then common shareholders will have to wait until creditors, bondholders, and major shareholders have been paid before it’s their turn.

Influencing Management

Common shareholders have the right to vote in elections to a business’s board of directors. Through electing members to the board of directors, common shareholders are able to influence the direction that the business takes, as well as the way that it is managed and run. For smaller businesses, there is usually a single individual who serves as the president or chair of the board and they will generally own the bulk of the company’s shares. However, the larger a business is, the more diversified its share structure tends to be.

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In either case, individual members of management aren’t able to single-handedly decide who is going to sit on the board of directors. This ensures that even common shareholders who own a relatively small portion of the overall shares available have some influence over the composition of the board of directors.

Buying New Shares

When a business offers new shares for sale to the public, common shareholders will have the right to purchase a certain number of those shares before new shareholders are able to buy in. This is important for common shareholders as they are often able to purchase shares at a subscribed rate instead of having the buy them on a per-share basis.

Sue For Wrongful Acts

Any shareholder who feels that their rights are being violated or that they are being denied rights that they are entitled to can sue the business in court to rectify the situation. For most shareholders, shareholder rights litigation is a last resort they turn to when they have exhausted all other potential remedies. However, it is important for shareholders to know that the option is there if they do need to defend their rights as a stakeholder in a business.

The rights of shareholders in the US are legally protected and the majority of businesses will respect these rights. However, it is important to know what those rights are so that you can challenge any business that does not respect them.