Shareholder vs. Stockholder

Bill Sjostrom —  21 May 2006

Along the lines of the last paragraph of this post, when I was a second year law firm associate I drafted a brilliant “Comparison of Rights� section for an S-4 registration statement as required under Reg S-K, Item 1004(a)(2)(v). The section compared the rights of owners of common stock under Minnesota law and Delaware law. It was soon pointed out to me, however, that I had made the rookie mistake of referring to all owners of stock as “shareholders.� While in Minnesota and other MBCA states, owners of common stock are referred to as “shareholders,� the Delaware corporate code uses the term “stockholder.� Hence, my references to owners of stock in the Delaware corporation should have been to stockholders not shareholders. Fair enough and easy to fix, but I wonder how many people are aware of the distinction. I read articles and opinions (some of them by Delaware judges) all the time where the author seems to be blissfully unaware—he or she either refers to owners of Delaware stock as shareholders, or, more horrific (because it violates the golden rule of contract drafting), he or she refers to them in one place as shareholders and in another place as stockholders.

The reason I bring this up is I’m wondering whether there is a conventional way to handle the issue in a law review article. I’m currently working on one now where I talk about both owners of stock in MBCA corporations and owners of stock in Delaware corporations. I currently refer to them all as shareholders but drop a footnote early on explaining that as used in the article “shareholders� refers also to “stockholders� yada yada. Do I then change any quotes I have in the article that use “stockholder� to “[shareholder]?� Do you think anyone even cares? Do you regret having read this post?

Update:  Gordon Smith points out here that the term “shareholder” does appear in the DGCL four times.  So the above distinction is a myth.  I curse the partner who told me otherwise.  This is why you should always use Delaware counsel on Delaware law issues (Gordon practiced in Delaware).

12 responses to Shareholder vs. Stockholder

  1. 
    Marcia Shuman 26 June 2008 at 3:54 pm

    Why would a private company change its designation from shareholder to stockholder? In Indiana.

  2. 

    I’m still confused. Does one have to be a lawyer to understand the difference?

  3. 

    so, in consequence there isnt any difference between the 2 terms, is it??

  4. 

    I’m with Kate, and not just because securities *litigators* are taught to elide the distinction, for judges’ sakes.

  5. 

    Precision in scholarship is caring about details that matter for the research question. The distinction between “shareholders” and “stockholders” is as relevant for scholarly precision as remembering to italicize the comma after “e.g.”

  6. 
    Bill Sjostrom 22 May 2006 at 11:18 am

    Kate:  I agree that the distinction likely adds nothing to the academic study of corporate law. I look at though from the perspective of both a corporate law scholar and teacher. For the practice of corporate law, the distinction can be important, so I teach my students this and other seemingly trivial distinctions. Hence, I feel inclined to use the same degree of precision in my scholarship, i.e., to practice what I preach.

  7. 

    Just use whichever word you like without apologies, footnotes, and substitutions. Nobody cares.

    These sorts of word plays make cute practitioner trivia, but I see no reason why they should enlighten academic study of corporate law. You can use “hippopotamus� for all I care, so long as you define it upfront.

  8. 
    Elizabeth Nowicki 22 May 2006 at 10:02 am

    No – strong no.
    No – strong no.
    No.
    I made the same mistake years ago. Reason number 459 why I think it is important for academics in our field to actually have practiced at some point.

  9. 
    Securities Guy 21 May 2006 at 5:28 pm

    My first thought upon reading this was that I made the same mistake as a junior associate at a law firm.

    My second thought was that this is a perfect illustration of why so many people hate lawyers.

  10. 

    Stockholder…shareholder…that was my very first mistake as a first year corporate law associate!! You’d be surprised. People care. I doubt that any law review editors will have learned not to make this mistake by the time they are reading your article, but might as well fix it.

Trackbacks and Pingbacks:

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  2. TRUTH ON THE MARKET » Defining Words - May 22, 2006

    [...] Yesterday, Bill raised the issue of using the term “stockholders� instead of “shareholders� and vice versa.  His post met some interesting comments (read here).  A couple of days before that, I had posted about defining “good faith� and “not in good faith.�  See “Nowicki on Good Faith� here and, in its first iteration, here.  In Bill’s post, he was ruminating about how careful he needed to be (or did not need to be) when using the words “stockholder� and “shareholder� in his academic writing.  In my post, I was ranting about the bastardization of the phrase “not in good faith.�  [...]