What is a Stock Company? What goes on in the Stockholders' Meeting?
The day before yesterday, we had our annual stockholders' meeting, and I am relieved. This morning, I am going to describe what a stock company and stockholders' meeting are.
"Who owns the company?" This argument comes up in various places and situations all over the world. In Japan, companies tend to be considered publicly-owned, and that they belong to a number of stake holders such as stockholders, administrators, employees, customers, local societies, etc. However, legally, stock companies are owned by stockholders.
If you start a business, you'd need some start-up money to start the business itself and some working capital to sustain it. Individuals and companies who see potential in your new business, purchase stocks and that money goes towards the start-up money. In other words, they invest into your business. These investments are the initiation of a stock company.
If the business doesn't go well, then the stock value becomes zero and the investment is a failure. If the business is successful, the stock value goes up, and if the investors can sell the stocks at a higher rate than the invested value, then the investment is a success. It is also possible to gain returns in the form of dividends each year. Simply, the fruit of the company is shared in proportion to the amount invested by stockholders.
Stockholders assign directors to run the company, and simultaneously, they assign auditors. Before the stockholders' meeting, auditors are required to review what directors had been doing in the previous fiscal year. At the meeting, they need to declare its accuracy. Then, the directors are supposed to report to the stockholders about the status of company, hold discussions and obtain opinions, and get their proposals approved.
Generally, there are three kinds of proposals: 1) What to do with the earnings from the previous fiscal year; whether to pay them off as dividends or reinvest into the business for the next fiscal year. 2) Who will be selected as directors and auditor(s) in the coming years. 3) What is the total budget towards the directors and the auditor(s) payments. On top of that, any critical issues that significantly affect the business need to be assessed.
There are many ways to determine the value of a company's stocks. One effective way is to let the market decide at the stock exchange, but in order to do so, the company has to go public. That is called IPO. However, this also means the company might have many unknown stockholders taking control, and some stockholders might only be interested in getting a high return and only thinking in the short term.
At e-Jan, we have very limited and visible stockholders, thus, we do have control of our future. If pure investors were the shareholders, they would quite likely demand short term returns. Some public companies go back to being private companies by a method of MBO (Management Buyout). This is because management wants to take back control of their company.
Anyhow, this is a brief description of what is going on in the background at the stockholders' meeting. After the precise accumulation process of the previous fiscal year's numbers, getting them audited, and then approved by the stockholders, that we can officially step into the next fiscal year. That is why I feel so relieved.