Many investors who buy securities are unaware of the rights that come
with stock ownership. While specific rights depend on the type of
security, the laws of the state where the company is incorporated, and the
by-laws and charter of the company itself, some rights are standard.
Companies generally issue one or more of types of securities. The better
known are common stock, preferred stock and debentures or bonds.
Investors who buy a share or shares of common or preferred stock are
actually buying an equity or ownership interest in a company. Buying a
debenture or bond is a kind of loan to the company. In return, the
investor receives interest and repayment of the face amount of the bond at
The company's by-laws and charter set forth the rights of each class of
security-holder. For example, a company's charter may state that only the
common stock has voting privileges or that the preferred stock must
receive dividends before any dividend is paid common stockholders. The
rights of bondholders are treated differently. The specific bond agreement
or indenture represents a contract between the issuer and the bondholder.
Thus, the type of payments and privileges of a bondholder are governed by
the bond agreement or "indenture."
The state where the company is incorporated (it appears on the face of
the certificate) also gives investors certain rights. Most states provide
that shareholders have the right to: (1) vote on questions affecting the
company as a whole; (2) hold a proportionate ownership in the assets of
the company; (3) transfer ownership of their shares; (4) receive dividends
when declared by the board of directors; (5) inspect the corporate books
and records; (6) sue the corporation for wrongful acts; and (7) share in
the proceeds of a corporate liquidation.
In addition, most states also have laws about the kind of corporate
information given to shareholders, and concerning the annual meetings of
shareholders. Also, state law generally governs investors' rights to an
appraisal of their securities in certain instances, such as a merger.
While state laws concerning these requirements are fairly uniform,
investors should not assume that the laws of one state are identical to
another state. They should look up the specific state laws that apply to
Both state corporate laws and the federal securities laws provide in some
cases for access to stockholder lists. This access may depend on state
laws and their interpretation by state courts. Usually access is based on
an investor showing a legitimate corporate purpose.
Federal securities laws also give investors important rights. To enforce
these rights, shareholders must seek redress privately, either
individually or as a class.
If you have any questions about shareholders rights, contact the Office
of Consumer Affairs, Securities and Exchange Commission, Washington, D. C.
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