Corporate social responsibility (CSR): Do shareholders own a company?

Do shareholders own a company?

Yes or no.

If one asks the question, “Do shareholders own a company (incorporated entity)?”, The most likely answer is “Yes.” However, this is not correct. While the shareholders, and generally only the majority shareholder, control the company through their power to elect the board of directors, they do not own the company. Therefore, the obvious question is: “If the shareholders do not own a company, who owns it?” Would you be surprised to hear “Nobody”?

No one? How can this be?

A company has an artificial personality. That is, the law recognized that the incorporated entity has legal personality. You can hire, sue, and be sued in your own right. Since it is artificial, however, it cannot speak and think like a human being, so it requires real people to speak and think on its behalf. These human beings are the directors of the company and legally and effectively control the operations of the company.

What evidence is there for this claim?

Limited liability

Shareholders are not responsible for the debts of a company unlike an owner who has unlimited liability. However, directors, in some circumstances, such as bad dealing, may be personally liable for a company’s debts.

Balance sheet

On a balance sheet, equity is on the liability side of the ledger. The same as bank debt or loans. The reason for this is that it is a special form of debt, which has no legal obligation to be repaid. However, it is a debt to shareholders. This means that it is not considered a liability for accounting purposes.

Accounting treatment

When earnings are recorded, they are recorded in the equity account, however, as a separate item called Current earnings, Undistributed earnings or retained earnings. When and if a dividend is declared, the distribution is made by debiting the retained earnings account and crediting the bank account in the Company’s books. If there are no earnings or retained earnings (earnings from prior periods), then no dividends can be generated.

Owner’s capital

Some small business ledgers refer to capital as “owner’s” capital. This applies only to sole traders and partnerships, not to incorporated bodies. This term is for simplicity and serves to increase confusion rather than clarify. I would suggest that an owner can withdraw his share capital at any time, but a shareholder cannot.

Return on capital (buyback)

By law, dividends cannot be paid out of capital. Dividends are a distribution of profits. To return capital to shareholders, which is generally called a buyback, the company must seek court approval to do so, while an owner can withdraw his capital at any time.

Resume

Nobody owns a corporation. Companies have personality and, like real people, they are not owned by anyone. The directors of the company control the company. Shareholders control who will sit on the company’s board of directors. Shareholders are not responsible for the debts of a company. Shareholders receive a dividend only when the company makes a profit and then only if the directors decide to declare a dividend. A court order is required to return the capital to the shareholders.