Shareholder Ownership, Liability, Rights, and Corporate Governance

All flashcards

Who is a shareholder?

A shareholder is an individual or legal entity registered as the legal owner of shares in a corporation. Shareholders may also be called members, and in the United States they are often called stockholders.

How do registered and beneficial ownership differ?

The registered owner is named in the corporation's register. The beneficial owner is the person or entity that receives the economic benefit of the shares; the two can be different.

What does a nominee shareholder do?

A nominee appears on the corporation's register as the shareholder while holding the shares for the benefit of, or at the direction of, a beneficial owner. Legal effects and risks vary by jurisdiction.

What is the general idea of limited shareholder liability?

Shareholders are legally separate from the corporation and generally are not liable for its debts beyond any unpaid amount on their shares. A separate guarantee or applicable law can create additional obligations.

How do primary- and secondary-market share purchases differ?

A primary-market purchase, such as subscribing to an IPO, provides capital directly to the corporation. In a secondary-market purchase, an investor buys shares from an existing holder, and the payment generally goes to that seller.

Quiz questions

1. Which statement best describes a shareholder's general liability for corporate debts?Answer: Liability is generally limited to any unpaid amount on the shareholder's shares.
2. How does a nominee shareholder typically hold shares?Answer: The nominee is registered as owner while holding shares for another's benefit or at their direction.
3. Which method estimates voting-right value by comparing shares with and without voting rights?Answer: The dual-class approach compares prices of voting and non-voting shares.
4. Which statement distinguishes shareholders from other corporate stakeholders?Answer: Shareholders own shares, while other stakeholders may have interests without owning shares.
5. Why may voting and engagement matter to passive index funds?Answer: Selling an individual company may move a fund away from its index, making voting and engagement useful tools.