What Are Stocks?

A stock is a security that represents ownership of a fraction of the corporation that issued it. Units of stock are called shares and entitle the owner to a portion of the c🦹orporation’s profits equal to the number of shares owned.

Stocks are bought and sold predominantly on public exchanges. The exchanges and the stocks that are listed on them are required to conform to gꦉovernment regulations meant to protec𓄧t investors from fraudulent practices.

Understanding Stocks

Corporations issue stock to raise funds to operate their businesses. The holder of stock, a shareholder, may have a ꦫclaim to part of the company’s assets and earnings.

A 澳洲幸运5官方开奖结果体彩网:shareholder is considered an owner of the issuing company, determined by the number of shares an investor owns relative to the number of 澳洲幸运5官方开奖结果体彩网:outstanding shares. If a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have a claim to 10% of the company’s assets and earnings.

Stockholders do not own a corporation, but corporations are a special type of organization because the law treats them as legal persons. Corporations file taxes, can borrow, can own property, and can be sued. The idea that a corporation is a “person” means that the corporation owns its assets. A corporate office full of chairs and tables belongs to the corporation, and not to the shareholders.

Corporate property is legally separated from the property of shareholders, which limits the 澳洲幸运5官方开奖结果体彩网:liability of both the corporation and the shareholder. If the corporation goes bankrupt, a judge may order all of its assets sold, but a shareholder’s assets are not at risk. The court cannot force you to sell your shares, although the value of your shares may have fallen. Likewise, if a major shareholder goes bankrupt, they cannot sell the company’s assets to pay their 澳洲幸运5官方开奖结果体彩网:creditors.

What Is Shareholder Ownership?

What shareholders own are shares issued by the corporation, and the corporation owns the assets held by a firm. If you own 33% of the shares of a company, it is incorrect to assert that you own one-third of 💧that company. However, you do own one-third of the company’s shares. This is known as “separation of ownership and control.”

Owning stock gives you the right to vote in shareholder meetings, receive 澳洲幸运5官方开奖结果体彩网:dividends if and when they are dis𓂃tributed, and the right to sell your shares to somebody else.

If you own a majority of shares, your voting power increases so that you can indirectly control the direction of a company by appointing its board of directors. This becomes most apparent when one company buys another. The acquiring com🐟pany buys all the outstandཧing shares.

The board of directors is responsible for increasing the value of the corporation and often does so by hiring professional managers, or officers, such as the 澳洲幸运5官方开奖结果体彩网:chief executive officer (CEO). Ordinary shareholders do not🎃 manage the company.

The importance of being a shareholder is that you are entitled to a portion of the company’s profits, which is the foundation of a stock’s value. The more shares you own, the larger the portion of the profits you get. Many stocks, however, do not pay out dividends and instead reinvest profits back into growing the company. These 澳洲幸运5官方开奖结果体彩网:retained earnings, however, are still reflected in the ♋value of a stock.

How to Compare Common and Preferred Stock

There are two main types of stock: common and preferred.

澳洲幸运5官方开奖结果体彩网:Common stock usually entitles the owner to vote at shareholders’ meetings and to rec🐓eive any dividends🎃 paid out by the corporation.

澳洲幸运5官方开奖结果体彩网:Preferred stockholders generally do not have 澳洲幸运5官方开奖结果体彩网:voting rights, though they have a higher claim on assets and earnings than common stockholders. For example, owners of preferred stock receive dividends before 澳洲幸运5官方开奖结果体彩网:common shareholders and have priority if a company goes bankrupt and is liquidated.

Companies can issue new shares whenever there is a need to raise additional cash. This process dilutes the ownership and rights of existing shareholders (provided that they do not buy any of the new offerings). Corporations can also engage in stock buybacks, which benefit existing shareholders because they cause their shares to appreciate in value.

What Is the🤪 Difference Between Stocks and Bonds?

Stocks are issued by companies to raise capital to grow the business or undertake new projects. There are important distinctions between whether somebody buys shares directly from the company when it issues them in the 澳洲幸运5官方开奖结果体彩网:primary market or from another shareholder in the 澳洲幸运5官方开奖结果体彩网:secondary market. When the corporation issues shares, it does so in ☂return fওor money.

Bonds vary from stocks in several ways. Bondholders are creditors to the corporation and are entitled to interest as well as repayment of the principal invested. Also, creditors are given legal priority over other stakeholders in the event of a bankruptcy and will be made whole first if a company is 澳洲幸运5官方开奖结果体彩网:forced to sell assets.

Conversely, shareholders often receive nothing in the event of bankruptcy, implying that stocks are inherently riskier investments than bonds.

The Bottom Line

A stock represents 澳洲幸运5官方开奖结果体彩网:fractional ownership of equity in an organization. It is di💮fferent from a bond, which operates like a loan made by creditors to the company in return for periodic payments.

A company issues stock to raise capital from investors for new projects or to expand its business operations. 澳洲幸运5官方开奖结果体彩网:The type of stock, common or preferred, held by a shareholder dete💧rmines⛎ the rights and benefits of ownership.