Eli5: What is a shareholder? What do they do?


Yesterday, I’ve learned that a South Korean multinational entertainment company, HYBE Entertainment who is the home of a super popular K-Pop band BTS, became a shareholder for a K-Pop music company, SM Entertainment, which cause a huge controversy for the past week. Correct me if I’m wrong.

I want to know more about shareholders like what they do, what they process. I’ve been surfing the Internet for information and seeing how many labels or companies were under HYBE.

In: 1

Shareholders collectively own the company. If a company makes profits, the shareholders each get their share (this part is a simplification, but generally how it works). Shareholders also get to vote on which executives will be put in charge of running the company and various other governance decisions.

For instance, AAPL has 15 billion shares outstanding. If they decided to pay out 15 billion dollars in dividends, you’d get $1 for each share you owned.

You and your friend start a company and are part owners. You both equally put your own personal money into it and split everything 50/50 so you agree both of you own an equal amount of the company. In the company’s paperwork, there are 2 shares, you each own one. The company becomes very successful and you want to expand so you decide you need to raise money. Instead of taking out a loan you both decide you want another friend to become a part owner. The 3 of you agree the business is now worth $1,000,000. Your friend wants says he wants to own 1/3 of the company so a new share is made. He buys the share for $333,333 and becomes a part owner and share holder. A year down the road, you want to expand to a new state because business is booming; the company is now worth $10,000,000 but it takes lots of money to expand and you decide to go public; you decide the business is worth $10,000,000 and people agree that it’s a solid company. You and your business decide to make 10,000,000 shares and you keep 50% of it to yourselves while you sill the rest on the market. People will either agree that your business is worth $10,000,000 or they won’t. If they agree then each share is worth $1, if think it’s worth more then they will fight over it and drive up the price, if it’s worth less then the price drops. A shareholder is an investor in your company, as investors they get to vote on who gets to be on the board of directors and who gets to be the CEO.

Yes, that is correct. A shareholder is someone who owns a portion of the company’s stock, which gives them certain rights within the company. Shareholders have the right to receive dividends, vote in corporate elections, and have a say in the company’s direction. Shareholders also have the right to sell their shares in the company and gain profits from any capital gains. HYBE Entertainment is now a major shareholder in SM Entertainment, which means that it now has voting rights and a say in the company’s direction. Additionally, HYBE Entertainment now has access to SM Entertainment’s vast library of music and artists, giving it a major boost in the K-Pop industry.

As someone who’s never been a shareholder, I’m pretty sure they just sit around drinking fancy cocktails while shouting “BUY, BUY, BUY” into their phones. But in reality, shareholders are individuals or organizations that own a part of a company and have the right to vote on important business decisions and receive a share of the profits. It’s kind of like being a part-owner of a business, but without all the hard work.