If you’re starting your investment journey and are on the verge of opening a demat account or opened and still confused by what shareholder and stockholder mean, then stop! Shareholder and stockholder are terms which are often used interchangeably and refer to individuals, firms, organisations, or entities that own shares (or stocks) in a company. There is no substantial difference between these two terms. Usage of these two terms mainly depends on regional or historical conventions.
Let’s break it down further for you in the simplest way possible so you clearly understand everything about a shareholder. In this blog, we’ll tell you what being a shareholder means and signifies, along with its benefits.
Basics of being a shareholder
Let’s begin with the very basic by addressing what is a shareholder first. In the not so complex world of finance, a shareholder is someone who owns shares in a company. These shares represent a portion of ownership in that company and are listed on a stock market exchange of the company. Say, if you own shares of company A, you’re essentially a part-owner of the company A. Although your shareholding depends on the number of shares that you hold. Shareholding implies that you have a say in certain company decisions and, potentially, a share of the profits when company performs well.
Types of Shareholders
There are two main categories of shareholders- common shareholder and preferred shareholder. Common shareholders are those who have voting rights in management decisions of the company and receive dividends. On the other hand, preferred shareholders might not have voting rights but get priority when it comes to receiving dividends or assets in case the company gets liquidated. To become a preferred shareholder, one must purchase the preferred shares while if anyone purchases the normally listed shares, they become a common shareholder.
How to Become a Shareholder
Now, you might be thinking, how could anyone become a shareholder of any company?
There are several ways to become a shareholder. You can buy shares during an Initial Public Offering (IPO) offer or could purchase them in the secondary market. But how could you purchase them?
You could purchase stocks with the help of a demat account. But before you make your first purchase, it’s crucial to find good companies to invest in. You can even take help of a stock market paid course. But it should be your homework to understand the business model company you’re investing in. You must remember, knowledge and research are your best friends in the world of investing.
Rights and benefits of a shareholder
As shareholder investors have the power to vote on important company decisions at the Annual General Meetings (AGMs). Shareholders are also entitled to receive company’s profits in the form of dividends which could be reinvested. This investment methodology helps in harnessing power of compounding, where the investment amount grows exponentially over the long term.
Responsibilities of a shareholder
As a responsible shareholder, you should actively participate in AGMs. You must also stay informed about the company’s performance, financial sheets and make responsible investment decisions as per your investment strategy.
Shareholding structures in Indian companies
In India, companies could be broadly categorized as public or private. Public companies offer their shares to the public and these shares are listed on country’s stock exchanges like NSE and BSE. Private companies, on the other hand, have restrictions on transferring their shares. As a shareholder, one must understand these structures before investing even a Re.
Corporate Governance and Shareholders
While shareholder place their interest in stock markets, corporate governance plays a pivotal role in protecting their interests. In Indian markets, statutory bodies like the Securities and Exchange Board of India (SEBI) oversee corporate governance to ensure transparency and accountability. Presence of a regulatory body helps in maintaining the integrity of the stock market and interest of common shareholder.
Risks and Considerations for Shareholders
As an investor, you must be aware of the risks associated with investing. Stock markets are volatile, and there’s always a possibility of corporate fraud. Thorough fundamental analysis, diversification and risk management are key strategies to protect your portfolio from risks. As a shareholder, it is your duty to be as well as stay well-informed. Also, you must continuously keep learning about the market with the help of stock market free webinar or stock market courses online free with certificate so you can make informed decisions.
Tax Implications for Shareholders
As an investor you must have a clear understanding of the tax implications of your investments. Different types of income for stockholder, such as dividends and capital gains, are subject to various tax treatments as per the Indian tax regime. To get the most out of your returns, it’s essential to be aware of the tax rules and have a tax-efficient investment allocation of your portfolio amount.
How could you become a wise shareholder?
To become a wise stockholder, you’ll need access to the latest tools and correct resources. You can devote time to research for these resources or could even enrol in one of the top 5 online stock market courses in India if you want to save your time. These courses often cover investing in depth along with topics like candlestick patterns and even the basics of candlestick charts. It is very important to remember that the power of compounding could only work wonders for your investments only over a long-term period.
In conclusion, being a shareholder can be a rewarding and empowering experience. It’s not just about buying shares; it’s about being part of the growth and sharing the success of companies. By understanding the fundamentals from best stock market courses in Delhi, sticking to your investment strategy, and continuously learning, you can become a successful investor. Doesn’t matter, whether you’re a beginner or you are just looking to expand your knowledge, you should enjoy your stock market journey and never repeat the same mistakes. Happy investing!