The meaning of stock
Stock in the simple understanding can be defined as the portion of shares of all the total earnings of any company or a business entity. This will also include all the assets of that particular company. The value of stock an investor has in a certain company represents the possible claim he or she has in that company. Any company or any business entity has both assets and earnings all represented into monetary value. This means the total value of that business in case of liquidation. Liquidation means breaking up of a particular company in case of loss or selling of that company. In such a case, owners of that company will get each according to the value or the proportion of shares one has. The owners of a company are called shareholders. Shareholding represents the amount of shares you have in that company which represents your value as at that date.
Stock markets are investment businesses that involves putting investments in a certain business entity in terms of shares. This will involve taking risk in the case that the value of shares drop in any case. There are two major types of stock. These are;
- Common stock-common stock will represent shareholders of a certain company who have the right to vote in the companies’ general meetings. These are shareholders who are involved in decision making a certain company. In most cases common stock will affect the growth of a company. The more the shareholders, the greater the value of stock of a company. These shareholders can vote in or they vote out certain directors or the company. This depends on how the y feel these directors are leading the company.
- Preferred stock– these are the “major shareholders” of any company. They are also referred to as directors of a company. These shareholders are the ones that are involved in major decision making of a business entity. They decide what businesses to partner with for example. Major shareholders do not vote in the companies’ meeting.
Another feature of stock is that the owners of the company are not liable personally in the case of the companies’ debts. This is called limited liability. This means that in the case that a company has debts, the owners of the company will not be liable for the debts personally. In this case if the company goes bankrupt, other companies that are set up are the ones to follow the shareholders personally. In the stock investment, an investor can only lose the value of investments. Even in the case that a particular company goes bankrupt, the value of shares each owner has is the only factor that can cause your loss. Your personal assets cannot be affected.
Stock in a company therefore represents different percentages of ownership of the company. This means that each shareholder has a certain proportion of ownership of that company. The more the shares you have in a company, the bigger the portion you own in that company.