Legal Rights and Privileges of Common Stockholders
by MaestriThe common stockholders are the owners of a corporation, and as such they have certain rights and privileges as discussed in this section.
Control of the Firm
Its common stockholders have the right to elect a firm’s directors, who, in turn, elect the officers who manage the business. In a small firm, the largest stockholder typically assumes the positions of president and chairperson of the board of directors. In a large, publicly owned firm, the managers typically have some stock, but their personal holdings are generally insufficient to give them voting control. Thus, the managements of most publicly owned firms can be removed by the stockholders if the management team is not effective.
State and federal laws stipulate how stockholder control is to be exercised. First, corporations must hold an election of directors periodically, usually once a year, with the vote taken at the annual meeting. Frequently, one-third of the directors are elected each year for a three-year term. Each share of stock has one vote; thus, the owner of 1,000 shares has 1,000 votes for each director.1 Stockholders can appear at the annual
meeting and vote in person, but typically they transfer their right to vote to a second party by means of a proxy. Management always solicits stockholders’ proxies and usually gets them. However, if earnings are poor and stockholders are dissatisfied, an outside group may solicit the proxies in an effort to overthrow management and take control of the business. This is known as a proxy fight. Proxy fights are discussed in detail in Chapter 12.
Taken From : Five-Minute MBA – Corporate Finance
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