The role of shareholders within a business

By definition, a shareholder is somebody who owns ‘shares’ of a company. Shareholders will invest their money into a business, providing financial security, as well as overseeing how the directors of the company manage it. In return, shareholders receive a percentage of profits generated by the said company. Moreover, if the company becomes liquidated and its assets are sold; the shareholder may receive a portion of that money, provided that the creditors have already been paid. The advantage of being a shareholder lies in the fact that they are not obliged to shoulder the debts and financial obligations incurred by the company. Which means creditors cannot force shareholders to pay them.

 

One role of a shareholder is deciding how much salary other members such as directors receive. This may seem unchallenging; however; a shareholder must take many things into account when deciding wages. For example, a shareholder must ensure that a director is being paid fairly for their work, covering expenses, and ensuring the wage is liveable. However, a shareholder cannot make the salary so high that it severely compromises profits. This means that this task is extremely important for shareholders to get right; as they have to find a happy medium where the business’s profits are not affected. Whilst also ensuring the salary compensates the directors for any expenses and the cost of living in the area.

 

Another role exclusive to a shareholder is that they can vote on who sits on the board of directors, as well as to appoint new directors. Shareholders also hold the power to remove old directors as well as being able to decide on what powers are granted to the directors. This is crucial to the business as a shareholder must ensure they appoint knowledgeable directors; so that they can rest assured that their business is in safe hands of the directors. By appointing the wrong directors and not thinking through the process, the business could be put at risk of liquidation and collapse. This, therefore, means that shareholders must think carefully about who they want to direct their business and ensure they are knowledgeable and have some level of experience.

 

In addition, shareholders also check over/approve the company’s financial statements or accounts. This is important as it allows the shareholder to gather an insight into the business’s financial health as well as compare what is owned vs what is owed. This means that shareholders can make informed business decisions. And also to monitor and understand the performance of the business over a period of time. As a shareholder investing your money into a company, being able to access the financial health of the business; is critical to determine whether your company is successful and if it isn’t, what steps you need to take to better the business.

 

Another role held by a shareholder is to help ensure their business meets their strategic objectives. Shareholders can do this by contributing their experience to the business and adding their perspective on the task at hand. This can involve sharing opinions as well as providing necessary materials and resources. A supportive shareholder makes a huge difference to a business and is crucial to its success as a whole. Ensuring that a business is equipped with the means to flourish. This will often result in a successful business. And, in turn, return great profits of which the shareholders are able to reap a percentage of their investment.

 

A shareholder is arguably the most important role within a business as they essentially have the ability to control it. If a shareholder is unhappy; then they can fire directors and managers or, in an extreme case, even sell the business as a whole. This power means that the shareholders have a major say on the business; as they effectively decide on the future of the business. If the shareholder makes a mistake in controlling the business, this could negatively impact the company’s overall financial health.

 

Shareholders also have the ability to decide on the dividend payout percentage. This means that out of any profit the business makes it is up to the shareholders how much is paid out to them. This is because shareholders initially invest their finances in the hope of a profit pay so dividend pay-outs are ultimately up to them. It is important that shareholders decide on the dividend pay-out percentage sensibly; so that they are not putting their business at risk if any unexpected financial needs arise.

 

In conclusion, shareholders are vital to a company and arguably the most important role within a business. Shareholders have the ability to appoint and fire directors, oversee accounts to gain a financial health picture of the business as well as decide on the dividend payout percentage. Whilst not being an easy job, shareholders can expect to reap the rewards of their investment if a business is effectively managed and successful in its venture.

 

Want to know more?

 

Here at D&K Accounting, we specialise in advising businesses comprised of all different company structures. We can also advise which may be the best structure for your particular business as well as to advise you on how shareholders may be able to benefit your business. Get in touch with us today to find out more about the value that they can bring to your business and we will be happy to have a chat with you.

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