You've purchased stock in XYZ Company, and now you are a shareholder in that company. But, what exactly does that mean?
Being a shareholder in a company simply means you own shares of stock in that company; you own a part of that company. As an owner of the company, you have the potential of seeing the company be successful and make money for you. But, you also have the potential of seeing the company do poorly, which likely will result in the price of a share of stock dropping and you losing money. All of this means you should do your homework in checking out any company whose stock you are considering purchasing.
The shareholders of a company elect the members of the board of directors, and that board makes the major decisions under which the company operates. One of the major decisions a board of directors makes is the number of shares of stock to be issued to the public. This, of course, has an impact on the worth of your individual shares of stock. A pie divided by four who plan to eat it means each person gets a very large piece of the pie. That same pie divided into eight slices means a much smaller portion for each person. The same holds true for the number of shares of company stock available.
Not all companies have public shareholders. Some companies choose to remain private with a small number of shareholders (such as a family) owning all of the stock in that company. In private companies, a relatively small number of people have full control of all decisions related to the operation of the company. Public companies, on the other hand, have thousands of people who own the stock, and the stock is traded on a public stock exchange. The shareholders in a company are constantly buying and selling shares of the company, particularly mutual fund managers with very large holdings. So, the shareholder body fluctuates daily. This makes company interactions with the company's shareholders difficult. Public companies are not able to interact with shareholders in the same fashion as a private company interacts with its shareholders. Typically, shareholders of a public company receive an annual report and perhaps other short reports a few other times during the year.
Companies make a decision about offering shares of company stock for financial reasons. For example, if a private company wants to raise a significant amount of investment capital (money) quickly, the company to may decide to "go public" by issuing stock to the public in the form of an initial public offering (IPO). If the cost per share of stock in an IPO is $10, and the company sells a million shares, the company has ten million dollars to put into the company budget for employees, equipment, and other expenses.
What benefits does the shareholder receive for the investment of money in the company? If the company makes a profit, that company may choose to share some of the profit with shareholders in the form of a dividend. Companies just going public typically do not offer a dividend, since they need to put the money to work in growing the company. If companies are successful making money, more people want to buy the stock, and this raises the price of the stock. When the shareholder sells the stock, if the stock price has increased from the time of purchase, the shareholder will make a profit.
While shareholders have input into who serves on the board of directors of a company or corporation and may attend the company's annual meeting, they do not play a role in the company's day-to-day operations. The management team for the company, along with members of the board of directors, has the authority to make decisions about most of the company's operations. If, however, the company is considering a merger, that issue will be brought before the shareholders for a vote. Shareholders also have the opportunity to vote on whether or not to permit the company to buy back shares or to issue new shares. In addition, shareholders vote on any alteration to the company's constitution (if it has one) or statement of shareholder rights, director compensation, authorization of dividends, and on shareholder proposals. Notices of annual meetings and business to be conducted at those meetings, along with shareholder voting information, are sent to all current shareholders of a company.
What happens if a company declares bankruptcy? First, you should know that shareholders do not incur any personal liability for the company's debts or other financial obligations. Whew! However, if a company goes out of business, many people get paid before the shareholder, so the possibility of a significant loss is present. Companies may have three classes of securities: bonds, preferred stock, and common stock (which would be what the average investor owns). The shareholders of common stock are at the bottom of the list for a payout; the bond holders and the holders of preferred stock will be paid first. Check out Investopedia
for an article about your rights as a shareholder.
Data Breaches and Me
An interesting (free) site that captured my attention a short while ago let me determine if my email address was attached to any online account that had been involved in a data breach or attack.
The website Have I been pwned
? was created by Troy Hunt, a software developer who has been recognized as a Microsoft Most Valuable Professional (MVP) awardee for Developer Security, even though he is not a Microsoft employee. He developed this site after the large Adobe security breach that involved more than 150 million accounts.
No email personal data (such as passwords) is kept on this site. The intention of the developer was to map usernames and email addresses to data breaches. Some breaches are announced that turn out to be hoaxes. To determine that, the site owner attempts to validate the so-called breach by looking at any impact the attack has had, whether or not a search for the breach brings up legitimate data, whether the structure of the data is consistent with real breaches, and related factors.
The site identifies the Top 10 breaches, continuously updated, and also lets the user view all breaches. In addition to the list, a good many short paragraphs are available about the companies breached that give information about the breach. Many names on the list are ones I do not recognize. Among the names I do recognize are Dominos (a June 2014 breach that took place in France and Belgium), Forbes (a February 2014 attack leaking information on over a million accounts), and Sony (several attacks occurred in 2011).
When I typed my email address into the space provided, I received the message that yes, I had been pwned. The website indicated that I should "take appropriate action," such as changing my password (which I did). The site also gave me the opportunity to ask for a notification of any time I get pwned. When I signed up for that notification, I received an email asking me to verify my email address.
Simply type your email address into Have I been pwned? and learn whether or not any website you have used may have compromised your data.
Sandy is an InvestEd Inc. director and serves as vice president for education. She is lead editor and prepares the general program brochure for the conference. Sandy has helped form investment clubs, presented introductory investing programs, and taught stock study and mutual fund classes at local, regional, and national events. In her leisure time she participates in a line dance group, plays handbells, bridge, and golf, and enjoys a variety of other activities, including investing. Sandy is professor emeritus of kinesiology, Georgia Southern University.
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