How to Become a Shareholder?

Who is a Shareholder?

A shareholder, also known as the stockholder, is a person, a company, or an institution who or which owns at least one share of a company’s stock, known as equity. Shareholders are required as the owners in a company, as they reap the benefits of a business’ success. The rewards of the company come in the form of increased stock valuations, or as the financial profits that are being distributed as dividends. In contrast to this, when a company loses money, the share price invariably drops, this can lead the shareholders to lose money, or they might suffer declines in their portfolios’ values as well. 

How Do You Become a Shareholder in a Company?

A corporation issues stock to represent an ownership interest in the company, for making the owner a shareholder. This news often depicts fluctuations of the stock market, it shows the daily results of the stock market.  This is a collection of stocks that are based on size or industry as a measure of how the overall investment world performed. 

Becoming a shareholder with any public company means buying the stock of the company with the help of a brokerage firm. On the other hand, becoming a shareholder in a private corporation involves directly contacting the company with an offer to invest.

To invest in companies and be a shareholder of the same we will share some important points which will give us an idea about ‘how to become a shareholder of a company’. 

1. Buying Stocks from Brokerage Firms

The brokerage firms buy and sell stocks along with other financial instruments. These firms have different levels of service depending on the type of information and service one needs from them.

2. Full-Service Brokers

It all depends upon the need of the service required. For instance, if an individual wants to invest in a company, he needs to hire a full-service broker to analyse the companies and give market analysis and know other details as well. But, if the share is being purchased for any future time, like for example for one’s grandchildren, then one can ask for discounted information from the full-service broker to provide only the required information without digging in the details.   

3. Types of Stocks

Not all stocks are created equally. There are types of stocks that the investor needs to be aware of. After total knowledge of the stock, he can invest in the company with his adequate type of stocks. 

4. Making the Purchase

After good analysis, one can buy the stock. This requires a "buy" order. This is done through the broker or the online brokerage platform. Generally, the new accounts require a minimum balance to ensure that one can pay the price of the stock before its purchase. 

After calculating their own budget, one can buy the stock. Here the investor is required to know the market price of the stock and the current fluctuating rate.

Investing in Private Companies

In order to buy shares from private companies, there is a different process altogether. Most small businesses are these private corporations which are owned by a small group of owners and investors. Private corporations manage their stocks in a ledger that is being maintained by the Corporate Secretary.

An interested party needs to call the secretary or the president, stating his desire to buy into the company. Next, he needs to negotiate the price per share and number of shares. The owners are reluctant to give up a majority shareholder control so that their ownership is not at stake.

Once the number of shares and their value is established, the pay is remitted to the company. Notes are then made in the ledger of the new ownership, and a paper stock certificate is signed by the president and the corporate secretary, which is being issued to the new shareholder as proof of ownership.

FAQs (Frequently Asked Questions)

1. Define Private Corporation.

Ans. A private company is a firm which is held privately. The Private Companies issue stock and have shareholders, but their shares are not traded on the public exchanges and are not issued via IPO (Initial Public Offering). Thus, private firms do not need to meet certain filing requirements which are mandatorily required by the public companies. The shares of this company are less liquid and this makes it difficult to determine its value.

A privately held company or a private company is not owned by the government. It does not offer or trade its company stock or shares to the general public on the stock market. 

2. What is a Brokerage Firm?

Ans. A brokerage firm provides intermediary services in various areas, e.g., in investing, obtaining for a loan, or purchasing a real estate. This is an intermediary who connects a seller to a buyer to chalk out a transaction. In this case, the individuals or legal entities can act as brokers in this case.

This firm conducts transactions on behalf of a client. Generally, brokerage firms only conduct transactions, while others also offer investment advisory services.

3. What is the Meaning of ‘Stock’?

Ans. A stock is a generic term which is used to describe the ownership certificates of any company. A share refers to the stock certificate of a particular company. Holding a particular company's share makes one a shareholder. Stocks are of two types - common and preferred.