Understand the Rights of Shareholders

Many investments, such as beginning a business, place an individual at risk for personal culpability. This is only one of the many instances of shareholder rights. When an individual invests in a company by purchasing stock, he/she obtains an assortment of shareholder rights.

Federal and state corporation law, initially devised in the Model Business Corporation Act, have some influence over shareholders' rights. However, shareholder rights may vary a great deal from one corporation to the next. Therefore, an individual should research a company's charter in order to fully understand shareholders' rights in regard to that corporation.

In general, most stockholders will maintain some fundamental and similar rights. When an individual purchases a stock, he/she reserves the ability to vote on issues related to company management and operations. Topics that stockholders have a definite stake in include a potential merger with another company, the sale of company assets, and changes to the corporation's bylaws.

A shareholder’s rights also permit them to vote in debates involving the board of directors and voluntary dissolution of the company. All of these issues possess major implications regarding the future of a company. Therefore, as partial owners of the corporation, stockholders do have a voice in these matters.

In short, shareholders' rights give investors a claim to a company's assets. In the event that a corporation files for bankruptcy and its assets are liquidated, shareholders have the right to obtain a portion of the profit gained through the sale of the company's assets. When the assets are sold, the profit will be distributed amongst shareholders.

When an individual purchases a share of stock, he/she attains shareholder rights over that stock. Therefore, he/she has all rights pertaining to the sale and trade of that stock. Shareholders' rights also include the ability to collect dividends.

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