How to Become a Stockholder | To Play an Active Role In the Company Development

November 25, 2021 | Editorial Team

You can become a stockholder in a company if you own some of their stock. The number of shares owned determines how much say you have in the company. Shareholders can vote on corporate matters and elect board directors who will play an active role in the company’s development. You also receive dividends when your company earns profits.

To be a stockholder, you need to buy stock from the company, brokerage firms, or the company’s shareholders.

When you buy stocks, you are an investor. Investors come in all shapes and sizes. As a stockholder, you need to attend annual general meetings and get a chance to mingle with company directors. Below are some of the ways on how to become a stockholder.

How to Become a Shareholder

Being a shareholder is not easy. It takes time and dedication to learn about the company and its products. There are several things you need to know before you become a shareholder. Below are some of them:

Show up For Annual Shareholder Meetings

Annual meetings are events organized by companies to discuss important issues affecting the company. Companies invite shareholders to attend annual meetings so that they can share new company initiatives. You should attend shareholder meetings because it gives you a chance to ask questions and voice concerns.

If you attend enough meetings, you’ll eventually become part of the decision-making process. You also stand a chance to mingle with the company’s board directors.

If there is a need to change the board, stockholders can vote on new and potential board members during these annual meetings.

Use Your Voice as a Shareholder

As a shareholder, you have the right to speak up when something goes wrong. Companies listen to their shareholders because they have a mutually beneficial understanding. If the company lose their customers’ trust, it might not be able to survive. Therefore, they try to respond to all complaints and suggestions made by their shareholders.

If you are passionate about taking the company ahead, you can rally your views as a single shareholder. You might have support from other shareholders and have your initiatives taken into consideration. 

graphs, calculator and magnifying glass

Pay Attention to the Board of Directors

The board of directors is responsible for running the day-to-day operations of the company. As shareholders, you can choose which board member you want to represent you through votes during meetings. You can pick a board member based on their experience, knowledge, skills, and expertise.

To grow more successfully over time, the relationship between shareholders and directors should be mutual for all. The mission of a board of directors is to set policies for corporate management, monitoring, and make significant decisions on major company issues.

However, if the board is not acting in the company’s best interest, shareholders have the right to do something to ensure the smooth running of the company. 

Buy Company’s Stock Through Brokerage Firms, and From Other Investors

a person trading online

You can buy shares through brokers. Brokers act as intermediaries between investors and companies. They help investors find suitable investments by screening potential companies for them.

If you want to invest in a particular company, they will do their best to find it for you. Some brokers specialize in finding good deals for small investors like you (see also robo advisors).

Another way is buying shares through brokerage firms. These firms offer many services to clients, such as account management, portfolio management, research, and trading. Their job is to make sure that you get the most out of your money. They may charge fees for these services, but they are worth the fee because they save you time and effort to come up with a trading strategy that you can stick to. 

You can also buy shares directly from someone else who already owns them. Secondary markets exist so that people can sell their shares to others at a lower price than what they initially paid (see also how day-trade works in Canada).

Network as a Shareholder

Networking is an excellent way for you to meet new investors and top-level executives in the stock market. Shareholders form clubs or associations where they can share common interests giving them a chance to socialize and learn about each other’s experiences. They also allow you to network with like-minded people within your company and outside that could make the most of your professional position.

How Much Does a Stockholder Make?

A stockholder makes money depending on how much they invest in the company. They can make money from the shares they own through capital appreciation and paid dividends.

Dividends are cash profits made by the company and belong to shareholders. Suppose the company has shares worth 1,000 in the hands of investors plus you if you own some shares, if you declare a $5,000 dividend, stockholders will receive $5 per share.

The corporation reaps the benefits in the form of increased stock valuations. The company will distribute some of the payments to shareholders as dividends.

a man watching the stocks data and celebrating success

However, the company will reinvest a significant portion of the profits back into the business. When the company loses money, the shareholders lose money, too, the share price will tumble without exception.

Capital appreciation is the increase in the value of a company’s stock. It happens when the company sells more stocks, increasing its growth. When this occurs, the company has more funds available to pay dividends to shareholders. The more valuable the company’s stock is, the more it will push its stock price up.

Suppose a shareholder sells a share to a new investor for $20. If the stock price rises to $25 later, the shareholder will profit $5. However, that profit exists only in writing and is subject to disappearance unless the shareholder secures it by selling the share. 

Can Anyone Become a Shareholder?

Anyone can be a company shareholder since most companies have no restrictions on ownership and issuance of shares. Any person based anywhere in the world can purchase shares in a company, including youths, senior citizens, etc. if they want to.

However, consult your preferred bank before you issue shares to anyone under 18 years old. It is challenging for a person under 18 years to enter into legal contracts, creating issues over time.

A company can have as many shareholders as it wants. You stand a chance to include additional shareholders if you are among the preferred shareholders who usually don’t have voting rights.

However, the company pays them dividends before common shareholders.

a woman and a man watching at the tablet

How Much Stock Do You Need to Be a Shareholder?

If you control and own at least 50 percent of the outstanding shares of a public company, it considers you a majority shareholder. Minority shareholders hold less than 50 percent of the company’s stock. In most companies, you will find that company founders are the majority shareholders.

Majority shareholders have the power to control critical decisions and operations like replacing C-level executives and board members through votes. As a result, corporations frequently try to keep majority shareholders out of their ranks.

What Are Some Key Shareholder Rights?

Despite the disparity in the number of shares, all shareholders have rights over how the company operates. They include:

  • The right to inspect corporate documents and records.
  • They have the power to sue the company for their wrongful acts on the officers and board of directors.
  • The right to attend annual meetings.
  • They have the right to exercise their voting rights on critical corporate matters like replacing, electing, and naming the board of directors.
  • The right to claim allocation of proceeds if their company liquidates assets.
  • The power to decide whether there is a green light for potential mergers.
  • The right to receive dividends.

How to Be a Shareholder; Ways to Be an Involved Shareholder

Getting involved as a shareholder in a public company means that you need to purchase the company’s stock through a brokerage firm. There are many ways you can be involved, but the most important thing is that you have some skin in the game.

The following tips will help you get started:

Read the Company’s Annual Report and Financial Statements

You should read the company’s annual report, which gives you a good idea about what’s happening over the past year. The financial statements provide details on the performance of the company during the current fiscal year. They show where the company’s financial profits stand compared to its competitors.

a person reading annual reports

They also tell if there are any problems or opportunities that could affect the company’s future earnings.

Buying Stocks from Brokerage Firms

Before you buy stocks, it is best to analyze the potential of the company that you want to invest in. Find out whether the company meets your investment criteria. If you decide which company you want to invest in, contact a broker specializing in the type of shares you wish to buy. They will place orders for you with one of the major stock exchanges.

Look for Growth Opportunities

Companies grow when new markets open up, new technologies emerge, and customers demand more from their products and services. If you see growth opportunities, it might be time to invest in the company. You can do this by buying shares in the company.

Consider Buying Shares That Are Outstanding

If you want to buy shares in a company, find out whether anyone else owns them already. The company allows its shareholders to hold onto outstanding shares. Before you decide to buy shares, consider the market capitalization. It is best to buy outstanding shares only when the price is right.

The Bottom Line

Being a stockholder means that you don’t sit back and watch how things go. Instead, you take action and try to influence the direction of the company. You can do this by researching companies, reading reports, and making decisions concerning the board through annual meetings. You may even want to sell some of your shares so that you can reinvest the proceeds into other companies.