Corporations:Stockholders' Rights

Brian Krogol
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So let's discuss some of the rights of a stockholder. So when you own shares of stock in a company that comes with some rights that you have. So the first one here is voting rights, you have the right to elect the board of directors. So each share, let's say you own one share of stock. Well, that's worth one vote in the in the vote for the board of directors. So you imagine the more shares of stock you have, the more weight you have in electing the board of directors. So that's why someone who owns 50, uh 51 or 75% of a company. Well, they have complete control and they can elect everyone they want on the board of directors. Right? So that's the main thing that the voting rights are for is electing the board of directors, but it comes up for other such things, other important things such as a merger, right? If they're gonna merge companies, usually they take it to the stockholders and and have a vote on on that important, big issues like that. Okay, the next one here is dividends, right? We've talked about dividends before, you have the right to receive dividends and we say you receive your proportionate share, let's say you own 10% of the company, Well you get 10% of the dividends, right? That makes sense. You get your proportionate share of dividends. Same thing with liquidation. So if the company was going to end right, they're gonna say, Okay, it's over here, we're gonna liquidate the company. Well, what they're gonna do is they're gonna pay off all their liabilities, and what's left over is shared between the stockholders, right? You're gonna imagine that they've made some money over the years and what's left over gets paid out to the stockholders at liquidation. Okay. And this is obviously a rare thing. Corporations have that unlimited life, so they tend to have unlimited life and keep on going. You don't see liquidation happen too much unless a stock companies going into bankruptcy or something like that. Okay, And finally, you have this preemptive right? They love to talk about the preemptive, right? Because this is your option to maintain your own proportionate proportionate share when new shares are issued. Okay, So let's say the corporation had, well, let's do it in this example right? Here to show you this preemptive, right? So the idea is that you get to keep your same percentage of ownership when they offer new shares. So johnny clutch clutch owns 1000 shares of the outstanding 100,000 shares of abc company. So there were 100,000 shares of abc company. Johnny clutch owns 1000 of those 100,000. Right? So what was his ownership In in this example? He owned 1000 out of the 100,000 shares? Well, he owned 1% of the company, right? And now ACC Company issues 50,000 new shares, they're going to issue new shares to the public to raise additional capital. So this preemptive, right gives Johnny the option to purchase notice. He doesn't just get free shares or anything, he has 1st 1st right to purchase these shares to keep his proportionate um his proportion of ownership of the company. So since he owned 1% before he should be allowed to still own 1% after this um this new issue of shares. So since there's 50,000 new shares He should be given the right to purchase 1% of them so that he keeps his same owner ownership. So 50,000 times the one That comes out to 500 shares right? 500 additional shares. So notice he doesn't have to purchase these shares, he's just given the right to purchase these shares um through his ownership in the company. So what does this mean? He would be given the right to to purchase uh those 500 additional shares. And notice what happens if he does purchase them? Well now he owns the original 1000 plus the 500 and now the denominator, the total shares outstanding would be the 100,000 plus The 50,000 additional new shares. And we would see that his ownership stays the same. He has 1500 of the 150,000 shares. And that comes out to one Right. So notice he's given the option to keep his same ownership but he doesn't have to, he could just say oh that's okay you can issue the new shares. He's still probably gonna be worth more money because he's got a smaller piece of a bigger pie, that's kind of how you think of it. So let me get out of the way and let's calculate what his ownership would be if he didn't take his preemptive, right? And didn't calculate or didn't keep his 1% ownership. So we'll say this is if he buys them and we'll do doesn't buy them down here, just so you can see, so if he doesn't buy them, well, now he's only got 1000 of the 150,000, right? And what does that come out to as his ownership? Well, it's 1000 divided by 100 and 50,000 in total shares. Well, now his ownership is down to 0.67% of the company, right? If he does not use his preemptive right, remember he doesn't have to they just have to offer him the option to purchase the shares to keep his 1% ownership. Cool, Alright, let's go ahead and move on to the next video