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The rights of a shareholder in a business

What does it mean if you're a common shareholder in a business? Does your stake entitle you to anything beyond a dividend if the company starts to thrive?

Common shareholders actually take most of the risk when investing in a business. If it fails, they're the last ones who get paid. However, they also stand to get some big rewards through the increasing value of their shares if the company does well. That's why it's important to understand what your investment in common shares actually buys.

You get the ability to vote.

If the company is run properly, you'll be notified every time there's an important vote. You can vote in person (if you live near the company's headquarters) or send your vote by mail. You can also assign your proxy to someone else and let them vote for you.

Exercising your right to vote gives you an indirect say on how the company is run. If you've invested a significant amount of money into your shares, however, take the time to understand the issues and put your vote in. If the company continues to thrive, you'll be glad you did!

You can sell your shares.

Your shares or stocks are actually fairly liquid assets. You can convert them into cash in a few hours or overnight whenever the stock market is open. Your shares act like a savings account that you shouldn't empty without careful consideration. This is especially true with shares, since there's no guarantee you'll be able to get them back, especially at the same price.

You have the right to dividends.

Dividends are profits that are paid out to shareholders when those profits aren't reinvested in the firm. While you can't decide how much gets paid out and how much gets reinvested, you are due a cut based on how many shares you own.

You can sue if the executives do something wrong.

Class-action suits by shareholders can force a company to pay up when they've played loose and free with the rules. If, for example, a company you invested in did some creative accounting to inflate the apparent value of their shares, you're entitled to compensation for being defrauded and misled.

For more information on your rights as a shareholder, talk to a professional.

Source: Investopedia, "Know Your Shareholder Rights," accessed March 23, 2018

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