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Financial Literacy

Financial Literacy

Home Finance Investing Rights of Stockholders

Rights of Stockholders

If you buy stock in General Motors Company, does that get you a free car?

Nope. It doesn’t even get you a nice discount at the Cadillac dealership.

When you create your own (private) business, you may get the corner office and a really fancy cappuccino machine, but as a stockowner in a company, you get very different perks.

Stocks give you partial ownership of a company but without the hard work involved. You don’t have to punch the time clock, work at the company, or deal with the annoying coworkers; but you still get some rights for voting and rights to assets in case the company goes under.

Your rights as a stockholder depend on the type of stocks you buy.

  • If you buy common stock, you get a right to vote in stockholder meetings. Since there can be millions of stockholders, voting doesn’t happen in person. Instead, the votes are aggregated, and a board of directors hires a bunch of people (including a Chief Executive Officer) to make sure that the stockholders’ voices are heard. Usually, one stock gets you one vote, and the whole process works a little like the government, with the shareholders deciding on things like acquisitions, takeovers, and other major business decisions.
  • If you buy preferred stock, you don’t get a vote. What you do get, though, is earlier rights to the company’s assets if the company goes under. Once the creditors, bond holders, and others are paid off, you’re next up. By then, the slice of the pie might be a lot smaller, but you’re more likely to get a bigger part of the pie than common stock holders. They get the crumbs after the feast in case of a bankruptcy. With their voting powers, maybe they can vote to order a pizza, instead.

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