What Does It Mean To Be A Shareholder? (2024)

The UK has an army of shareholders. Over £200 billion was held in direct-to-consumer trading platforms in the UK last year, according to data from Fundscape.

Let’s take a look at the benefits of being a shareholder, including some of the less well-known perks of share ownership.

Investing in shares can be a good way to produce higher returns than cash-based investments. However, your investment can go down as well as up, your capital is at risk, and you may not get your money back. If you are unsure as to the right path, you should seek financial advice.

How are shareholders rewarded?

1. Increase in share price

Investors hope that the company’s share price will rise, allowing them to make a profit when selling their shares.

According to trading platform IG, the FTSE 100 index of leading UK shares has achieved an average annual price return of 6% over the last 35 years. Shareholders in oil and gas giant Shell have enjoyed a 40% increase in its share price over the last year due to soaring energy prices.

Remember, however, that there is no guarantee that individual shares or share indices will increase in value over time. Your capital always remains at risk and you could lose all your money.

2. Income from dividends

Many companies pay cash to shareholders in the form of a dividend. Shareholders receive a dividend per each share they own, usually paid once or twice a year. This money flows from profits made by the company.

Investors in high growth companies, such as US technology stocks, typically receive little or no dividends as surplus funds are reinvested in the company to provide future growth. In theory, this should result in an increase in the share price over time, although the share price is also affected by the general state of the stock market.

Investors in high dividend-paying companies, such as many of the large, blue-chip companies that make up the FTSE 100, pay a higher dividend but may have a more modest growth in share price as a result.

Some of these companies are currently trading on a dividend yield of as much as 13% (calculated as the dividend per share divided by the current share price).

3. Shareholder perks

Shareholders may also receive other benefits from investing in a company. Here’s a few examples of the current perks on offer, some of which are subject to a minimum shareholding:

• Bloomsbury Publishing: 35% off the RRP of books published by Bloomsbury
• BT: discounts on selected products in the BT online shop including laptops, headphones and telephones
• Carnival: onboard credit of up to £150 for longer cruises
• Fuller, Smith and Turner: 15% discount on food and drink in Fuller’s managed pubs and 10% discount in Fuller’s hotels
• Legal and General: 25% discount off life insurance premiums and 10% more on the over 50s life insurance cash sum
• Mulberry: 20% discount in certain stores
• Next: 25% off one purchase of full-priced items
• Safestore: 25% off storage for new customers
• Whitbread: free breakfasts in Premier Inns and 10% discount in Whitbread restaurants.

What other rights do shareholders have?

Shareholders in UK companies have certain rights, including voting, attending general meetings and participating in future issues of shares.

1. Attending general meetings

Shareholders in UK companies have the right to attend a general meeting and vote, with shares typically carrying one vote each. Shareholders collectively owning at least 5% of shares in a company have the right to submit a resolution and call a general meeting.

Companies hold an annual general meeting (AGM) where the directors present the annual report, discuss results and vote on resolutions. AGMs are usually fairly unexciting affairs, although topics such as directors’ pay can be more contentious.

Shareholders can also submit proposed resolutions to force a vote on certain issues. An ordinary resolution requires a simple majority (over 50% of votes) to be passed while a special resolution needs at least 75% of votes to be approved.

A resolution submitted at Sainsbury’s recent AGM proposed that contractors, as well as employees, were paid a living wage although it fell short of the 75% backing needed.

M&S also faced scrutiny at its AGM for paying a £1.6 million bonus to its chief executive but no dividend for the last two years, with 30% of shareholders voting against its executive pay policy.

Lee Wild, head of equity strategy at interactive investor, comments: “It is hugely exciting to see companies, especially mammoth UK names such as M&S and Sainsbury’s, being challenged thoroughly on a public stage. It is no longer enough for a company to pay lip-service – shareholders want to see real, meaningful change.”

Companies may also hold extraordinary general meetings (EGMs) to seek shareholder approval for other matters, such as proposed acquisitions.

2. Pre-emption rights

Shareholders have a statutory right of first refusal, known as a pre-emption right, when new shares are issued. If a company wishes to issue new shares, it must offer them to existing shareholders on a pro -rata basis for a period of at least 14 days.

Shareholders are also protected by the mandatory offer rule under the Takeover Code in the UK. This means that, if a shareholder acquires shares with 30% or more of the voting rights in the company, they must make a cash offer to shareholders at the highest price paid for their shares over the last 12 months.

If a company is wound up, and there are surplus funds after paying all creditors, shareholders also have the right to a share of these funds (depending on the class of shares).

Having worked in investment banking for over 20 years, I have turned my skills and experience to writing about all areas of personal finance. My aim is to help people develop the confidence and knowledge to take control of their own finances.