Editor’s note: This article was first published in February 2011. The statement that the government is currently working to pass a law preventing companies from limiting certain shareholders’ rights refers to Spanish legislation being prepared at that time.
With more and more people taking an interest in investing in the stock market, I think it’s essential to know beforehand what rights an investor has as a shareholder in a company, since they are sometimes overlooked or we don’t get the right information.
1. A share of the company’s profits and of the assets left over if it is liquidated: This right means you are entitled to receive dividends, and to a share of the liquidation proceeds if the company you hold shares in were wound up.
2. Pre-emptive subscription when new shares and convertible bonds are issued: When a company decides to increase its capital, the new shares must first be offered to existing shareholders in proportion to the fraction of the capital their shares represent. The company’s general meeting can exclude this right, although the (Spanish) government is currently working to pass a law that would stop companies from limiting the rights of certain shareholders.
3. The right to attend and vote at meetings: Put simply, you’re entitled to speak and vote at general meetings. And if the company exercises its right to require a minimum number of shares to attend, you can group together with other shareholders and choose a representative to attend on your behalf.
4. Information: You have the right at all times to know what’s happening at the company and to request reports on new decisions, on the company’s accounts and on matters discussed at general meetings you weren’t able to attend.
In short, when you invest in a company’s shares, you become part of that company and have the right to influence its decisions. And as part of the company, you’re in it for better or worse, “worse” meaning that a wrong decision could make the company’s shares lose value, and as an investor you’d see your returns shrink.
That’s why we insist once again that choosing a stock should involve a thorough analysis of the company: studying its business plans, its future projects, the growth potential of its sector and any possible alliances with other companies.
Further reading
- Why the stock market is the most profitable investment
- What Arthur Rock looks at before investing in a company
- Which stocks to invest in for 2011
- Warren Buffett’s seven commandments of the stock market
Featured image: Good-investing, CC0 1.0, via Wikimedia Commons.
