Shareholder Base

A corporation's complete list of shareholders is referred to as its shareholder base.

Author: Ranad Rashean
Ranad Rashean
Ranad Rashean
I am a pharmaceutical, who decided to shift my career to be an Analyst.
Reviewed By: Osman Ahmed
Osman Ahmed
Osman Ahmed
Investment Banking | Private Equity

Osman started his career as an investment banking analyst at Thomas Weisel Partners where he spent just over two years before moving into a growth equity investing role at Scale Venture Partners, focused on technology. He's currently a VP at KCK Group, the private equity arm of a middle eastern family office. Osman has a generalist industry focus on lower middle market growth equity and buyout transactions.

Osman holds a Bachelor of Science in Computer Science from the University of Southern California and a Master of Business Administration with concentrations in Finance, Entrepreneurship, and Economics from the University of Chicago Booth School of Business.

Last Updated:September 5, 2023

What is Shareholder Base?

A corporation's complete list of shareholders is referred to as its shareholder base. In other words, it is a group of company owners (investors) who own a specific number of stocks (shares) that are distributed proportionally based on the amount of investment made.

Shareholders are various, which means that a shareholder base may include investment firms, such as pension funds or hedge funds, who have their financial targets and thus investment strategies

Individual or wealthy investors with varying investment horizons are also welcome to participate.

The majority of businesses are concerned with shareholder base management. The main reason is that companies believe that attracting an "ideal" shareholder base will result in significantly higher stock prices.

Shareholders are entitled to the proceeds after a company's assets are liquidated. As a result, creditors, bondholders, and preferred stockholders take precedence over common stockholders, who may be left with nothing after all debts are paid.

Identifying Shareholders' Base

As defined above, a shareholder owns one or more shares of a company's stock or mutual fund. Being a shareholder (or stockholder, as they are known) entails certain rights and responsibilities. 

A shareholder can vote on specific issues that affect the company or fund in which they own shares and share in the overall financial success.

A majority shareholder is a single shareholder who owns and runs more than 50% of a company's outstanding shares. Minority shareholders, on the other hand, are those who own less than 50% of a company's stock.

The majority of shareholders are company founders. In addition, they are frequently related to company founders in older, more established companies. 

When these shareholders control more than half of the voting interest, they significantly influence critical operational decisions. 

That includes replacing board members and C-level executives such as chief executive officers (CEOs) and other senior personnel. 

As a result, many businesses avoid having majority shareholders among their ranks.

Unlike sole proprietors or partners, corporate shareholders are not personally liable for the company's debts and other financial obligations. As a result, if a company goes bankrupt, its creditors cannot seize a shareholder's assets.

Controlling Shareholder vs. Majority Shareholder

In some cases, a company executive may be a controlling shareholder because they own the most voting shares, but they may not be the overall majority shareholder.

A controlling shareholder does not have to own the majority of the stock in the company. However, they hold enough stock to have a say in company matters and are the company's largest shareholders.

For example, Mark Zuckerberg, the founder, and CEO of Meta (formerly Facebook), is the controlling shareholder, but he does not own more than 50% of the total shares outstanding. Meta's stock is divided into two classes: 

Class A and Class B shares. Class B shares, which Zuckerberg primarily owns, have ten votes per share, whereas Class A shares have one vote per share.

Because Zuckerberg owns the most common stock in the company, he is the controlling shareholder but not the majority shareholder. 

The dual-class common stock structure gives Zuckerberg control over issues that require shareholder approval, despite owning far fewer than a majority of the common stock shares.

The majority or controlling shareholders are not always involved in the company's day-to-day operations. As a result, these people are sometimes referred to as "passive" shareholders. 

They may have been involved in the day-to-day operations of a company at one point but left to pursue other interests or due to age.

Value Investors vs. Growth Investors

Growth and value are two fundamental investment approaches, or styles, in stocks and stock mutual funds

1st footnote Growth investors look for companies with solid earnings growth, whereas value investors look for stocks that appear to be undervalued in the market.

Because the two styles complement each other, combining them can help add diversity to your portfolio.

1. Growth strategy:

Growth stocks are companies that have shown above-average earnings growth in recent years and are expected to continue delivering high-profit growth, though there are no guarantees. 

Emerging growth companies have the potential for high earnings growth but have not established a track record of solid earnings growth.

The growth funding key characteristics :

  • They are priced higher than the general market. Shareholders will pay high price-to-earnings multiples with the expectation of selling the companies at even higher prices as they grow.
  • High earnings growth figures While some companies may be depressed during periods of slower economic improvement; growth companies may be able to maintain high earnings growth regardless of economic conditions.
  • More volatile than the market as a whole. The risk in purchasing a specific growth stock is that its high price could plummet in the event of negative news about the company, mainly if earnings disappointed Wall Street.

Examples of companies that used Growth strategy:

a- Semrush: This is an example of a company that began with a basic SEO and paid search platform.

Over time, the company added new features and is now a comprehensive software suite. Although the target audience remained constant, new functionality attracted a more significant audience segment.

Semrush, which has a current market capitalization of more than $2.7 billion, found this business growth strategy effective.

b- Salesforce: They pioneered the concept of cloud-based subscription software in an industry dominated by powerful, expensive, complex enterprise software that required an army of professional service reps to get it to work.

Salesforce increased and is now worth more than $21 billion. In addition, the software industry evolved and is now completely saturated with other SaaS offerings.

2. Value strategy:

Value investors seek companies that have fallen out of favor but still have strong fundamentals. In addition, stocks of new companies that have yet to be recognized by investors may also be included in the value group.

The following are the key characteristics of value funds:

  • Lower in price than the rest of the market. The concept behind value investing is that good companies' stocks will appreciate over time as other shareholders recognize their true worth.
  • They are priced lower than comparable companies in the industry. Many value investors believe that most value stocks are created due to investors overreacting to recent company issues. 

Such disappointing earnings, negative publicity, or legal issues may raise concerns about the company's long-term prospects.

  • Carry slightly less risk than the overall market. However, because value funds take time to recover, value stocks may be better suited to long-term investors and carry more price volatility than growth stocks.

For example, based on the number of shares outstanding divided by the company's capitalization, the book value of a company's stock maybe $25 per share. 

As a result, if it is currently trading at $20 per share, many analysts would consider it a good value play.

Value or Growth or both?

Which strategy, growth or value, will produce higher long-term returns? For years, the debate between growth and value investing has raged, with each side offering statistics to back up its case. 

According to some studies, value investing outperforms growth over long periods on a value-adjusted basis. In addition, according to value investors, short-term thinking often drives stock prices to low levels, creating excellent buying opportunities.

Growth stocks, in general, have the potential to outperform when interest rates are falling, and company earnings are rising, according to history. But, conversely, they may be the first to suffer when the economy cools.

Value stocks, particularly those in cyclical industries, may perform well early in an economic recovery but are more likely to lag in a long-term bull market.

Long-term investors may combine growth and value stocks or funds for the potential of high returns with lower risk. 

This strategy, in theory, allows investors to profit throughout economic cycles in which general market conditions favor either the growth or value investment styles, smoothing any returns over time.

Researched and authored by Ranad Rashwan | LinkedIn

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