What are Stocks?

Stocks refer to a share in the ownership of a company. This means that if you have shares of a company you are also partly an owner of the company. Stock represents a claim on the company’s assets and earnings. Your ownership stake in the company becomes greater as you acquire more stock. Shares, equity, or stock, it all means the same thing.

Be an owner!

As one of the many owners, a stock holder has claims to everything the company owns. The claim is usually very small when compared to the company. This means that you own a tiny bit of every piece of furniture, every contract of the company and every trademark of the company. You are entitled to your share of the company’s earnings as well as any voting rights attached to the stock as an owner of the company.

The document that represents a stock is the Stock Certificate. Stock certificate is a fancy piece of paper which shows the proof of your ownership of a company. Because your brokerage keeps these records electronically, in today’s computer age, you won’t actually get to see this document. These shares are also known as holding shares “in street name”. This is done in order to make the shares easier to trade. Now, trading is done with a click of the mouse or a phone call unlike in the past, if a person wanted to sell his or her shares, that person had to physically take the certificates down to the brokerage. Now trading has become much easier. Being a shareholder of a public company you have one vote per share to elect the board of directors at annual meetings of the company. A shareholder does not have the right to call up the owner of the company and tell him how the company should be run. It does not mean that you have a say in the day-to-day running of the business by being a shareholder of the company.

The shareholders can vote to have the management removed from the company, at least in theory. This is when the company fails to increase the value of the firm for shareholders. It is a fact that ordinary individual investors don’t own enough shares to have a material influence on the company. The decisions are in most of the cases made by large institutional investors and billionaire entrepreneurs. There is no need to make fuss about not being able to manage the The idea behind this, after all, is that you do not want to have to work to make money! Being a shareholder of a company you are entitled to a portion of the company’s profits. You also have a claim on assets of the company. If you own more shares you are entitled to get more profit. These profits are usually paid in the form of dividends to the shareholders. In case the company of which you are a shareholder goes bankrupt then you can make a claim on assets it holds. In case of liquidation, you’ll receive what’s left after all the creditors have been paid. The fact that the importance of stock ownership is your claim on assets and earnings is the last point which is worth repeating since without this, the stock wouldn’t be worth the paper it’s printed on.

As a share holder of a company you have limited liability which means that as an owner of a stock, you are not personally liable if the company is not able to pay its debts. This is another extremely important feature of stock. Other companies such as partnerships are set up so that if the partnership goes bankrupt the creditors can come after the partners (shareholders) personally and sell off their house, car, furniture, etc. to get their investment back. On the other hand, all that stock owner stands to lose is the money he has invested, whatever happens. You will never lose your personal assets even if a company of which you are a shareholder goes bankrupt.