A shareholder, also called a stockholder, is any person, company or institution that owns at least one share in a company. Owning shares makes them a part-owner of the business, with rights that depend on the type of shares they hold.
Shareholders are usually grouped in two ways. By the class of shares they hold, there are common shareholders, who typically have voting rights, and preferred shareholders, who get priority on dividends but usually can't vote. By who they are, shareholders include insiders, institutional investors, retail investors and passive investors. Below, we explain all six types of shareholders and the rights each one has.
The 6 main types of shareholders
1. Common shareholders
Common shareholders own common stock, known in the UK as ordinary shares. It's the most widely held type of share, and in most companies common shareholders are the main owners of the business.
Rights of common shareholders
Common shareholders usually have the right to:
- Vote at general meetings, including the AGM. Normally each share carries one vote, so the more shares you hold, the more say you have on decisions such as electing directors, appointing auditors and approving major transactions.
- Attend and speak at shareholder meetings, and ask questions of the board.
- Receive dividends when the board declares them. Dividends on common shares aren't guaranteed and can rise, fall or stop altogether.
- Receive company information, such as the annual report and accounts.
- Buy new shares first. In many cases, pre-emption rights let existing shareholders buy newly issued shares before anyone else, so their stake isn't diluted.
- Limited liability. The most a common shareholder can lose is what they paid for their shares.
Risks and rewards
Common shareholders benefit most when the company does well, through rising dividends and share price growth. But they're last in line if the company is wound up. Creditors, bondholders and preferred shareholders are all paid first, and common shareholders receive whatever is left, which may be nothing.
Different classes of common shares
Some companies issue more than one class of common shares, such as Class A and Class B shares, with different voting rights. For example, founders may hold shares that carry more votes per share than those sold to the public. The company's articles of association set out the rights attached to each class.
2. Preferred shareholders
Preferred shareholders own preferred stock, known in the UK as preference shares. Preferred shares sit somewhere between common shares and bonds. They pay a more predictable income than common shares, but they usually come without a vote.
Rights of preferred shareholders
- Priority on dividends. Preferred dividends must be paid before any dividend goes to common shareholders. They're usually set at a fixed rate, such as a percentage of the share's nominal value.
- Priority if the company is wound up. Preferred shareholders are repaid before common shareholders, although after creditors and bondholders.
- Limited voting rights. Most preferred shareholders can't vote on day-to-day matters. However, they often gain voting rights in certain situations, such as when their dividends haven't been paid, or when a proposal would change the rights attached to their shares.
Types of preferred shares
- Cumulative: if a dividend is missed, it builds up and must be paid in full before common shareholders receive anything.
- Non-cumulative: missed dividends are lost for good.
- Convertible: can be exchanged for a set number of common shares.
- Redeemable (or callable): the company can buy the shares back at a set price or on a set date.
- Participating: can receive an extra dividend on top of the fixed rate when profits are high.
Risks and rewards
Preferred shares offer steadier income and more protection than common shares, but less upside. Because the dividend is usually fixed, preferred shareholders don't share in the company's growth in the same way, and the share price tends to move with interest rates more than with company performance.
3. Insiders
Insiders are people directly involved with the company, such as executives, directors and board members, who hold shares because of their role. Because they have access to non-public information, their share dealings are usually subject to strict rules and disclosure requirements.
In the UK and EU, for example, directors and senior managers can't buy or sell shares during a closed period of 30 days before the company announces its interim or annual results, and they must publicly report the deals they do make. Insiders who hold shares can usually vote at the AGM like any other shareholder, but they're often barred from voting on resolutions where they have a personal interest, such as approving a transaction with a company they're connected to.
4. Institutional investors
Institutional investors are large organizations, such as pension funds, mutual funds, insurers and asset managers, that invest on behalf of others. Because they often hold large stakes, they can have significant influence over shareholder votes.
Most institutional investors vote by proxy before the meeting rather than attending on the day. Many use proxy advisers, such as ISS and Glass Lewis, for research and voting recommendations on each resolution. In the UK, many asset managers and asset owners are signatories to the UK Stewardship Code, which expects them to engage with the companies they invest in and report on how they vote. Their support, or opposition, on issues such as director re-elections and executive pay can decide the outcome of a resolution.
5. Retail investors
Retail investors are individuals who buy and sell shares for themselves, usually through a broker or an online trading platform. Each one typically holds a small stake, but together they can make up a large part of a company's shareholder base.
Many retail investors hold their shares through a nominee account run by their broker or platform. The nominee is the legal owner of the shares, so retail investors don't automatically receive meeting invitations or the right to vote and attend, and often have to request them through their platform. This has historically kept retail turnout at AGMs low. Technology is starting to change that: Lumi Global facilitated the UK's first nominee shareholder access to AGMs, allowing shareholders who hold through nominees to join the meeting virtually or in person.
6. Passive investors
Passive investors hold shares for the long term rather than actively trading them, often through index funds. They tend to focus on long-term growth rather than short-term price movements.
When someone invests through an index fund or exchange-traded fund (ETF), the fund manager owns the underlying shares and votes them on the investor's behalf. Because the largest index fund managers hold stakes in thousands of companies, their votes carry a lot of weight at AGMs. Some managers now offer pass-through voting, which lets fund investors choose how the shares held for them are voted, giving passive investors more of a direct say.
The rights of each shareholder ultimately depend on the class of shares they hold and on the company's articles of association or shareholder agreements.
Common vs preferred shareholders: the key differences
- Voting rights: common shareholders usually vote; preferred shareholders usually don't.
- Dividends: preferred shareholders are paid first, often at a fixed rate. Common shareholders' dividends can vary and aren't guaranteed.
- Priority if the company is wound up: preferred shareholders are paid before common shareholders.
- Growth potential: common shareholders benefit most if the company's value rises.
Why shareholder types matter for your AGM
Different types of shareholders take part in meetings in different ways. Institutional investors often vote by proxy ahead of the meeting. Retail investors are more likely to want to attend, ask questions and vote on the day. Making it easy for every shareholder to take part, whether in the room or online, is a big part of running a fair, well-attended AGM.
Learn more about what a virtual AGM is and how it works, or read our guide to AGM legal requirements and best practices.
Frequently asked questions
What are the main types of shareholders?
The two main classes are common shareholders and preferred shareholders. Shareholders can also be grouped by who they are: insiders, institutional investors, retail investors and passive investors.
Do all shareholders have voting rights?
No. Common shareholders usually have voting rights, while preferred shareholders usually don't. The exact rights depend on the share class and the company's articles of association.
What is a majority shareholder?
A majority shareholder owns more than 50% of a company's voting shares, which gives them control over most shareholder decisions.
What's the difference between a shareholder and a stakeholder?
A shareholder owns shares in a company. A stakeholder is anyone affected by the company, including employees, customers, suppliers and the local community, as well as shareholders.
Are shareholders and stockholders the same?
Yes. Shareholder and stockholder mean the same thing: someone who owns shares (or stock) in a company. "Stockholder" is more common in the US, while "shareholder" is more common in the UK.
What's the difference between ordinary shares and preference shares?
Ordinary shares (common stock) usually carry voting rights and variable dividends. Preference shares (preferred stock) usually have no vote, but they're paid a fixed dividend first and rank ahead of ordinary shares if the company is wound up.
Can preferred shareholders vote at an AGM?
Usually not on ordinary business. They may get a vote if their dividends are unpaid, or on proposals that affect the rights of their share class. The company's articles of association set out exactly when.
Planning your next shareholder meeting?
Lumi Global helps companies run in-room, hybrid and virtual shareholder meetings that make it easy for every shareholder to take part. Talk to our team about your next AGM.
