What does it mean to become a shareholder of a company? We hardly think about it much. Shareholders get so engrossed in watching the day-to-day action in the stock market that they forget about their own existence. Owning a share in a company means more than just waiting for quarterly earnings or watching the stock price. You should also look at the larger picture, which might give you a different perspective. But for that you need to know about your place in the larger scheme of things.
Johnny: It would be interesting to look at stock ownership from a different angle. Do you think there are more incentives in owning stocks than what we generally presume?
Jinny: There are certain privileges that come just by virtue of you being a shareholder of a company. To get a more enlightened view, you need to know about your rights as a shareholder. Generally, shareholders don’t look beyond what may be happening at the bourses. But behind the noisy stage of the stock markets, every ordinary shareholder is also an owner of the company. That’s your first right as a shareholder of a company—you are the owner of the company. You may not be the absolute owner, but you do own a part of the company along with other shareholders. Think about this for a moment and you will really get a new perspective. No matter how small your portion is, you could partly own some of the biggest firms by becoming their shareholder.
Thinking about yourself as the owner makes you feel as if you were a part of the larger picture. It motivates you to know about your firm as thoroughly as any other owner should. But that doesn’t mean knowing about numbers that are sitting on the balance sheet alone. You should know about your company just like you would know about your favourite car or your favourite sport. A sense of ownership helps in developing a special bond between you and your company.
Johnny: But we often buy shares to make profit and not for falling in love with a firm. Many would consider an emotional attachment with any stock dangerous. Tell me, what’s the use of developing a sense of owning the whole world when you have no control over what is happening in the stock market?
Jinny: Well, it’s all about looking at your stock from a different perspective. Someone interested in making quick profits might have a different way of looking at his stock portfolio. But it’s not just about developing emotional attachment. You should also look at other rights and privileges that you enjoy as an owner of the company. For instance, every holder of ordinary shares enjoys the right to vote, which he can use to express his consent or dissent on many issues such as mergers, liquidation, election of board of directors or any other crucial decision affecting the company. It’s a different matter that you might not be able to turn the table as you like every time by exercising your vote. But you should always remember that nobody can prevent you from saying yes or no. Things do not stop here. As an owner, you are also entitled to leave the table anytime you like by selling your shares to somebody else. That’s also a way of expressing your negative views about a company. No company can question your right to transfer the stocks listed on a stock exchange through trading.
Johnny: I really feel like having found a new source of strength by knowing about my rights.
Jinny: Before you get carried away by your new-found source of strength, I would like to add a few words of caution. First of all, you must realize that you can’t stretch the sense of owning a company beyond a limit. For instance, your stock ownership does not entitle you to ask for the company jet for your own use. In fact, your stock ownership does not entitle you to put your hand on any asset of the company. Even when the company is under liquidation, you can’t take away any asset until and unless other claimants have received their money. Ordinary shareholders are the last to receive any asset of the company under liquidation. You might wonder what’s the use of stock ownership when you have to stand last in the line. Well, the real worth of your stock ownership lies in the profits generated by the company. Although ordinary shareholders have no say in what percentage of profit is paid as dividend, any dividend declared by the company goes straight into the pockets of shareholders. The shareholders benefit even if the company decides not to pay any dividend. That’s so because the market price of your shares keeps on appreciating when the company is accumulating profit.
Johnny: Thanks for explaining all this. It seems we are back to square one—quarterly earnings and stock prices.
What:Shareholders enjoy many rights and privileges that come along with stock ownership.
Why: Knowing about rights is important because it helps in developing a different perspective about stock ownership.
Who: Ordinary shareholders are the real owners of the company and they have right to vote on any crucial decision affecting the company.
Shailaja and Manoj K. Singh have important day jobs with an important bank. But Jinny and Johnny have plenty of time for your suggestions and ideas for their weekly chat. You can write to both of them at email@example.com