When a company decides to go public, investors who buy its stock become the new owners. This process, known as an IPO, or initial public offering, infuses the business with cash, but it also gives a great deal of power to the new stockholders. As owners, stockholders share their power with one another, but the decisions they make can affect a corporate hierarchy and the way a business operates in major ways.
Rights and Responsibilities
Stockholders share several rights and responsibilities with one another as the owners of a corporation. Each stockholder has the right to financial information about the company, in the form of an annual report that lists financial details about the business's expenses and revenues during the prior tax year. Stockholders also have rights to vote at annual meetings, either in person or by submitting proxy ballots. The primary responsibility for a stockholder involves taking the financial risk of buying a share in a business's ownership and participating actively in the voting process.
Electing Board Members
When stockholders vote, they make a number of determinations about a corporate hierarchy. One of the most direct determinations owners make is who will serve on the board of directors, which is the governing board of a company. Board members serve limited terms defined by the company's bylaws. They make decisions concerning corporate strategy and financial activities, all of which stockholders are indirectly responsible for because they elect board members with their annual meeting votes.
Stockholders are also indirectly responsible for a company's officers, who serve in the most visible and powerful day-to-day roles within the company. Officers, including the Chief Executive Officer (CEO), Chief Operating Officer (COO) and Chief Financial Officer (CFO), are appointed by board members, who vote on their selection. Because stockholders choose board members, they also play a significant role in determining which individuals from within the company or from outside it take on the highest leadership roles as corporate officers.
Stockholders also play an advising role within a corporate hierarchy, weighing in on issues of corporate social responsibility or financial behavior. Depending on a company's bylaws, stockholders may need to vote on policy decisions, such as whether to go through with a proposed merger, alter stockholder policies, change bylaws or invest in charitable initiatives. By participating in these votes, stockholders guide every aspect of a business's place in its community.