Categories or Types of Shareholders
There are four main different types of shareholders, namely the small private shareholders, the large private shareholders, the corporate shareholders, and lastly the institutional shareholders. An explanation, as well as the definition of each, will be provided in the paragraphs below. These definitions are important, you might find them in the exam.
1) Small Private Shareholders
Small share quantities, little communication with the company, vote unlikely to affect the outcome of decisions at general meetings. The votes of the small shareholders are unlikely to affect the outcomes of a vote at the annual general meeting of a larger company, mainly because the block votes of institutional shareholders or large private shareholders usually have a more material impact. Medium and smaller listed companies, however, often have private shareholders with material shareholdings. Private shareholders should, thus, not be ignored by companies, as private shareholders are often influential executives or directors of institutional investors.
2) Large Private Shareholders
Large proportion private shareholders (e.g., when a private company goes public) many private shareholders who may become directors of the public company hold shares; or in public companies with a family ownership history. Bill Gates is the main shareholder of Microsoft, while Mark Zuckerberg is the main shareholder of Facebook. In South Africa, we have examples like the Oppenheimer and Rupert families as good examples of South Africa.
3) Corporate Shareholders
When a company or close corporation is a controlling or significant shareholder. Often cross-holdings between companies exist based on some mutual understanding or strategic alliance, or one company may hold a significant block in another as an investment for a potential takeover bid in the future. In some case cases, two companies might have cross-shareholding, so that each holds a block of shares in the other, a typical example in the motor industry, where VW holds shares in Audi. This kind of cross-shareholding exists, through some form of strategic alliance or mutual understanding, which are often guided by a shareholding agreement. In preparation for a future takeover bid in the future, a company may hold a block of shares in another company.
4) Institutional shareholders
Organizations that have large amounts of funds to invest and place these into company shares. Such organizations may be mining houses, pension funds, and insurance companies. The majority of shares on JSE Limited are held by these organizations. A business, such as a mutual fund, bank, or insurance company that holds shares in a publicly-traded company. Institutional shareholders are important to placing new issues of stocks and bonds, as they can afford to buy more of an issue than individual investors. If an institutional shareholder owns a majority of the shares in a company, the company is said to be under institutional ownership.