3 Ways Ownership Can Be More Than Holding Shares
Having shares of stock in a company means that you’re a partial owner of said company (cool, right?). That means that when you shop at, eat at, spend at, or otherwise support a company you own shares in, you’re helping the company be successful and also hopefully helping increase the value of your shares. It’s like you’re giving your invested money that extra opportunity to grow. (Of course, there’s also a chance investments might lose value over time, but usually people who own stock aren’t hoping for that.)
In fact, one reason people start investing is the potential to grow their money. (We included that reason in our Why Invest post.) But something that’s talked about a little less often is what it means to actually be an owner in a company—and the perks and benefits that can come with it. So we’ve done just that. Here are three of our favorite potential ownership extras:
When a public company makes a profit, they have a few options for how to use that cash. Among those options: they can reinvest in their own operations, pay down any debt they may have, or choose to divvy up some of their extra cash as dividends to shareholders. Dividends can be a great way to thank loyal shareholders.
So what are they? It’s simple. Dividends are a distribution of a company’s earnings to shareholders. Another way to think about it: as a partial owner, it’s like your share of the company profits. They’re like a friendly reminder that you and the company are on the same team. Of course, not all companies pay dividends, and even those that do can always choose to reduce or stop paying them at any time.
Dividends typically happen on a quarterly basis and are usually paid out as “cash dividends” (though some companies might opt for “stock dividends” instead, and reward shareholders with, well, stock). A person’s dividend amount is proportional to how much stock they own in the company, aka “pro-rata” for the finance nerds out there. For example, if Totally Made Up Company issues a dividend of $0.40 per share and you own 100 shares, you’ll get $40 in dividends. If you own a fractional share of Totally Made Up Company stock—say 0.25 of a share—you’ll still get a dividend. In this case, it’d be $0.10.
While dividends aren’t necessarily a reason to buy shares of a company’s stock—we love them, because they’re a clear reminder that being a shareholder is ownership.
(Curious how Bumped handles dividends? We have a support article for that.)
2) Shareholder voting rights
As an owner of common stock, your opinion matters and there are two big ways to express that opinion: you can vote, or you can sell your shares. Shareholders with at least one full share of the company’s stock may get a voice on certain business decisions. The ability to vote at shareholder meetings isn’t just a perk—it’s a right.
When a U.S. public company holds a shareholder meeting, they’ll set what’s called a “record date”—if you own shares by the record date, you get to vote. Realistically, not every shareholder can travel to participate in a meeting, however, so voting is usually done by “proxy”, which is a way for you to vote without being physically present. Depending on the company, proxy voting can happen online, over the phone, or by mail.
Companies may let you know about shareholder meetings in any of these three ways.
- A notice that the election info is online for you to vote on
- A package with an annual report, info, and a proxy card with which to vote
- A package containing an annual report and info, but no proxy card
The things you get to vote on at shareholder meetings can vary, but they’re usually decisions that can affect shareholder value, like electing members to the board of directors or weighing in on an option to issue more stock. Day-to-day business operations decisions, however, like management changes, aren’t up for vote.
Shareholder meetings can include multiple issues to vote on. Shareholders get one vote per share of stock they own per issue up for vote. (Only full shares count when it comes to shareholder voting. So, if you have 1.5 shares of stock in a company, you’ll still only get one vote.) When it comes to electing candidates to the board of directors, though, it can be a little less straightforward. Depending on the company’s stockholder agreement, shareholders may have the option of statutory or cumulative voting.
In the case of statutory voting, shareholders can only vote for or against a candidate with the votes they have for each open position. Cumulative voting, however, allows the shareholder to pool their total number of votes and use them how they’d like across issues. For example, say you have 300 shares in Totally Made Up Company, and there are three board director spots up for grabs. If your stockholder agreement specifies you can only do statutory voting, then you have 300 votes for each open position. Under cumulative voting, though, you would get to add up your total votes across the three open positions (so, 900) and choose how you’d like to use them—which means you could use 600 votes in one election, 300 in another, and none in the third, for instance.
3) Perks and benefits
On top of the potential for dividends and voting rights, some companies also try to sweeten the deal for their shareholders by offering special perks, benefits, and discounts. While said perks, benefits, and discounts probably ought not be the only reason to purchase a company’s stock, they can be a nice extra.
Not all public companies offer perks and those that do don’t always publicly disclose them, but a little bit of sleuthing can go a long way in uncovering what benefits you might be able to take advantage of. Sometimes they’re even hidden in the fine print—so research away. A public company’s Investor Relations department may be good place to start.
We love when companies offer extra perks, because it’s such a clear statement of the symbiotic relationship between public companies and their shareholders. That’s also why potential dividends and voting rights are among our favorite ownership benefits. All three of these can empower shareholders and show that companies and shareholders are in this business together.