What is Shareholder Structure?

Explanation

Shareholders Structure Report classifies the different classes of shares issued by the company i.e., common sharesCommon SharesCommon stocks are the number of shares of a company and are found in the balance sheet. It is calculated by subtracting retained earnings from total equity.read more, preference sharesPreference SharesA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more, convertible shares, ESOPESOPEmployee stock option plan (ESOP) is an “option” granted to the company employee which carries the right, but not the obligation, to buy a promised number of shares at a pre-determined price (known as exercise price). read more, etc. where preference share can also be of two types i.e.,  preference shares without voting rights or preference shares with restricted voting rights. After classifying the different shares issued, Share Structure then retains the records of shareholders with the number and percentage of shares held by them at the end of the reporting period. But the percentage of shareholdings only provides the owner of the company which does not define the overall decision making power of the shareholders which can only be provided after declaring the voting rights available to the shareholders.

Maintaining the Shareholding Structure of a Company helps the management to diversify the ownership of a company and not letting a group control or having exclusive decision power. It is maintained at the acquisition of the company when the shares are issued to Promoters of the company and then the same is updated at the issue of new shares. This could be done by recording the name of the shareholders subscribing to the issue of shares of the company and recording the respective holdings of the shareholders. After recording this much, the percentage of the capital hold by every shareholder is calculated and the percentage of voting rights available to the shareholders is also evaluated and mentioned.

While preparing the Shareholder Structure of the company, the list of potential shareholders can also be mentioned, which will be holding common shares after dilution of the company or after conversion of their convertible securitiesConvertible SecuritiesConvertible securities are securities or investments (preferred stocks or convertible bonds) that can be easily converted into a different form, such as shares of an entity’s common stock, and are typically issued by entities to raise money. In most cases, the entity has complete control over when the conversion occurs.read more.

It also helps the management during the liquidation of the companyLiquidation Of The CompanyLiquidation is the process of winding up a business or a segment of the business by selling off its assets. The amount realized by this is used to pay off the creditors and all other liabilities of the business in a specific order.read more. It provides the owner of the company and provides the rights of the shareholders in the profit or value of the company. After paying off Creditors and preferential creditors, the remaining realization from the company’s assets are to be paid to the shareholders of the company according to the rights of the individual shareholders.

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Types of Shareholder Structure

Shareholders of the company are basically the owners of the companies who have purchased the shares of the company & they are also called ‘Stockholders’.

There are generally two types of shareholders Structure in a company which are as follows –

#1 – Dual Class Share Structure

Dual-class share structure provides more decision making power in the hands of promoters and management by providing them with more profit-sharing rights comparing to the voting rights which helps the management to focus on their goals without worrying about the decisions taken by opposing shareholders.

#2 – Multi-Class Share Structure

Multi-class share structures are the share structures adopted by companies that differ from the Dual Class Share Structure. This could be done by companies issuing different class of shares other than those which were issued in dual-class structure i.e., shares which provide preferential dividendsPreferential DividendsPreferred dividends refer to the amount of dividends payable on preferred stock from profits earned by the company, and preferred stockholders have priority in receiving such dividends over common stockholders.read more but no voting powers. It helps the company to raise funds without making any changes in the decision-making rights of the shareholders.

Shareholder Structure Template

Shareholder Structure Chart

Shareholder structure of a company may include the Holding companyHolding CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary’s directions and policies.read more that is holding more than 50% of the shares of the company, promoters, government (maybe central or state government) through government company or other bodies, other companies, and the general public holdings. A chart has been provided as an example for a better understanding of the concept.

Example of Shareholder Structure

ANC Ltd. Issued initial public offer, in initial public offer company, offered 100,000 Number of Shares. Out of 100,000 Promoters are holding 60,000 an equity share, AMC financial institutes subscribed 10,000 Shares, AB institute subscribed 10,000 an equity share, IC subscribed 5,000 equity shares, MF subscribed 5,000 equity shares, AN subscribed 100 equity shares, remaining 900 equity shares subscribed by the general public.

Shareholder Structure of ANC Ltd.

Conclusion

​The shareholder’s structure is a useful tool for management to keep track of the ownership of the company and the decision making powers in the company. The structure can be of two types- Dual-class share structure or Multi-class share structure; which help the management to maintain decision power in the hands of the management and promoters so that the management could focus on the vision of the company and could work towards the future prospects of business without thinking about the hindrance from the decision making of shareholders. Shareholder structure helps during the time of liquidation in deciding the liabilities & the rights of the stakeholders.

This has been a guide to Shareholder Structure. Here we discuss the shareholder structure of the company, its template along with an example, and types. You can learn more about financing from the following articles –

  • Financial StructureShares IssuedShareholder LetterShareholders Agreement Template