Saturday, June 9, 2012

The risks a stakeholder face while investing in companies

Stakeholder is a person interested in the affairs of any firm or company. Normally this term is used when it comes to security markets. When a company is in a position to raise its capital, the company approaches the public for finance, by issue of equity shares and preference shares and once the public invest their money in the company, they become the shareholders or stakeholders of the company.
While many stakeholders forget their responsibilities and rights after making the investments, some evince much interest in keeping a watch over the performance of the company and in fact they are responsible for the growth of the company in many ways. They can be called as the active stakeholders and the former can be called as the sleeping stakeholders.
In order to monitor the functions of the listed companies, there are separate governing bodies in all countries  and such governing bodies  are called by different names.
The stakeholder should evince much interest in understanding his rights, responsibilities and risks he face as a stakeholder in a particular company.
He should be necessarily aware of the following namely:
·         The rights that he is  having a stakeholder
·         The responsibilities that are cast on the stakeholders
·         The risks that he has assumed
·         The rules and regulations relating to trading and transfer of the securities and
·         The remedies for problems, if any, that he may encounter at any point of time
The risks the stakeholders face:
The stakeholders normally invest in any company, keeping in mind the following expectations:
·         The performance of the company will be better in future;
·         The prospects of income are found to be better on account of capital growth of the securities that he hold at present and
·         There are certain corporate benefits that can accrue to him apart from the above etc.
It is the responsibility of the stakeholders, before taking any investment decision, should obviously take note of and duly evaluate the attendant risks that go with such expectations
The stakeholder should not forget that one such risk is that his expectations on income and/or growth may not materialize as expected.
However, in case of stakeholders who had invested in the debt instruments like debentures or bonds, they can have recourse against the company, besides the market for redeeming them. However, as an equity holder of a company, in order to realize the value of their investments, the stakeholders are in a position to have recourse only to the market.
Apart from the risks as mentioned above, he is in a position to face the risk of running into problems with the trading and transfer of the securities sometimes.

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