The common stockholders are the real owners of the company, and as such they have certain rights and privileges. These rights and privileges of common stockholders are established by the term of the charter and laws of the state in which the company is registered. Common stockholders have some specific rights as individual owners. Some important rights are as follows:
1. Right To Share Income And Assets
Common stockholders have the right to share company's earnings equally on a per-share basis.Similarly, in the event of liquidation,stockholders have claim on assets that remain after meeting the obligation to accrued taxes, accrued salary and wages,creditors including bondholders and preferred stockholders. Thus, common stockholders are residual claimants of the firm's income and assets.
2. Control Of The Firm
Common stockholders control the firm through their right to elect the company's board of directors, which appoints management. In a small firm, the largest stockholder typically holds the position of president or chairperson of the board of directors.In a large publicly owned firm, the managers have some stock,but their personal holdings are insufficient to provide voting control. Thus, the shareholders remove the management if they do not perform effectively.
Preemptive right is a privilege offered to existing shareholders for buying a specified number of shares of the company's stocks before the stocks are offered to outsiders for sale.It is a provision in company's charter or by-laws that gives the existing shareholders right to purchase new shares at a subscribed price on pro-rate basis. Each stockholder receives one right for each share of stock owned. If the company sells new shares to the existing stockholders, it is called right offering.
4. Voting Right
Common stockholders can attend at annual general meeting to cast vote or use a proxy. A proxy is a legal document given one person the authority to cast vote and represent on behalf of others. Generally, each share of stock has one vote for each director at the general meeting. Thus, the owner of 1,000 shares has 1,000 votes for each director to be elected.