Rights and Duties of Shareholders. CPA Exam REG

In this video, I discuss rights and duties of shareholders as covered on the CPA exam.
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Shareholders, as part-owners of a company, have several key rights, duties, obligations, and forms of authority. Here's a clearer explanation:

1. Voting Rights
Shareholders are typically involved in making crucial decisions for the corporation through their voting rights. This includes two main aspects:

a. Electing and Removing Directors
Annual Elections: Shareholders typically vote annually to elect or remove members of the company's board of directors.
Fundamental Changes: They also vote on major corporate changes, such as dissolving the company.
b. Voting Mechanisms
General Rule (One Share, One Vote): Usually, each share of stock equals one vote. This is the standard unless the company's articles of incorporation specify a different arrangement.
Exception (Cumulative Voting for Directors): The articles of incorporation may allow for cumulative voting when electing directors. In this system, each share gets as many votes as there are director positions to fill. Shareholders can distribute these votes in any manner, including putting all votes on one candidate. This method is particularly beneficial for minority shareholders as it increases their chances of having representation on the board.
2. Distributions (Dividends)
When it comes to dividends or distributions:

a. No Automatic Right to Dividends
Board's Decision: Shareholders do not automatically have a right to distributions (like cash dividends or share repurchases). These are only available when declared by the board of directors.
Unsecured Creditors: Once a dividend is declared, shareholders are considered unsecured creditors of the corporation to the extent of the dividend amount.
b. Impact on Shareholders' Equity
Decrease in Equity: Any distributions made to shareholders reduce the corporation's total shareholders' equity.
In summary, shareholders have significant voting rights which include electing directors and deciding on major corporate changes, with the standard being one vote per share. Cumulative voting is an exception that can empower minority shareholders. Regarding dividends, these are subject to board approval, and upon declaration, shareholders are treated as unsecured creditors for the dividend amount. Distributions lead to a reduction in the corporation's shareholders' equity.

referred shareholders are a special class of shareholders in a corporation, and they typically have different rights compared to common shareholders, especially regarding distributions like dividends. Here's a more detailed explanation:

Preferred Shareholders and Distribution Rights
Varied Rights: Not all shareholders are necessarily equal in their rights to receive distributions. A corporation can create different classes of shares, each with its own set of rights.
Preference in Distributions: Preferred shares often come with a priority over common shares when it comes to distributions. This means they are entitled to receive dividends before common shareholders.
Types of Preferred Shares
Noncumulative Preferred Shares

Fixed Dividend Amount: These shares are usually entitled to a fixed dividend amount (e.g., $5 per year). This is paid out before any dividends are distributed to common shareholders.
No Accumulation: If a dividend is not declared in a given year, noncumulative preferred shareholders do not have the right to receive these missed dividends in the future.
Cumulative Preferred Shares

Dividend Accumulation: With cumulative preferred shares, if the company does not declare a dividend in a particular year, the dividend right accumulates.
Payment Priority: These accumulated dividends must be paid out to the cumulative preferred shareholders before any dividends can be paid to common shareholders in the future.
In summary, while common shareholders typically receive dividends after preferred shareholders, the latter have distinct rights depending on the type of preferred share. Noncumulative preferred shares have a fixed dividend amount without accumulation, whereas cumulative preferred shares allow for the accumulation of unpaid dividends, which must be paid out before any dividends are distributed to common shareholders.








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