A stock (also capital stock) consists of the shares that is divided among the owners of a company or corporation. A single share of the stock simply refers to the fraction of the company owned by the shareholder (or stockholder) in proportion to the total number of shares.
This entitles the shareholder (stockholder) to that fraction of the company’s earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested.
Classes Of Stock
Not all stock is necessarily equal. Certain classes of stock may be issued for example without voting rights. Some with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders. Stock can be bought and sold privately on stock exchanges.
Such transactions are typically heavily regulated by governments to prevent fraud, protect investors, and benefit the larger economy. The stocks are stored in the electronic format also known as Demat account.
As new company shares are issued, the ownership and rights of existing shareholders are diluted in return for cash to sustain or grow the business. Companies can also buy back stock, which often lets investors regain the initial investment plus capital gains from rises in stock prices.
Stock Options
Stock options issued by many companies as part of employee compensation do not represent ownership. However, they represent the right to buy ownership at a future time at a specified price.
This would represent a windfall (unexpected gain) to the employees if the option is exercised when the market price is higher than the promised price. This is because they get to keep the difference (minus taxes) if they immediately sold the stock.
Shares
The stock of a corporation is partitioned into shares. The shares form a stock. A person who owns a percentage of the stock has the ownership of the corporation proportional to their share. Additional shares may subsequently be authorized by the existing shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value.
The par value is a nominal accounting value used to represent the equity on the balanced sheet of the corporation. In other jurisdictions, however, shares of stock may be issued without associated par value.
Shares represent a fraction of ownership in a business. A business may declare different types (or classes) of shares, each having distinctive ownership rules, privileges, or share values.
Stock Certificate
Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a legal document that specifies the number of shares owned by the shareholder. It includes other specifics of the shares, such as the par value, if any, or the class of the shares.
In the UK, Republic of Ireland, South Africa and Australia, stock can also refer, less commonly, to all kinds of marketable securities.