Explanation:One of the most important sections of the corporate charter lists the number of shares that are authorized as well as the par value of each share. Not all companies are required to set a par value, but most do for a variety of reasons.When the newly formed corporation issues shares to investors, these investors become shareholders. These issued shares are recorded in the common stock equity account on the balance sheet . Most balance sheets list out the number of shares outstanding as well as the total number of shares that are authorized. Corporations typically do not issue all other authorized shares at once. Usually a significant portion of authorized shares stay unissued. This ensures the company will be able to raise capital by equity financing.
In a nutshell:
- A shareholder is any person, company, or institution that owns shares in a company's stock.
- A company shareholder can hold as little as one share.
- Shareholders are subject to capital gains (or losses) and/or dividend payments as residual claimants on a firm's profits.
- Shareholders also enjoy certain rights such as voting at shareholder meetings to approve the members of the board of directors, dividend distributions, or mergers.
- In the case of bankruptcy, shareholders can lose up to their entire investment.