Basics of Stocks- Opportunity to Own a Portion of Companies

Basics of Stocks- Opportunity to Own a Portion of Companies

Jun 18, 2018, 10:36:36 PM Business

A stock is usually defined as a share in company ownership. Stock represents the claim that is made on the earnings and assets of a company. Acquiring more stock will mean that your ownership stake within the company increases. However, it is important to note that stockholders do not actually own corporations. They have ownership of the shares that are issued by corporations.

Owning Corporations vs. Owning Shares 

  • Corporations consist of special organizations since the law handles them as legal individuals. This means that corporations can be sued, can own property, file taxes and more. The concept of a corporation being a person essentially means that it has ownership of its own assets. The corporation owns the office that contains tables and chairs, not the shareholders.
  • This is an important distinction because shareholder property is legally separated from corporate property. It limits the liability of the corporation and shareholder. A judge might order all of corporation assets sold if it goes bankrupt but personal assets will not be in jeopardy.
  • The court does not even have the authority to compel you to dispose of your shares even though their value may have drastically fallen. Similarly, in case a key shareholder files for bankruptcy, they cannot sell company assets in order to pay off their creditors.

Control and Ownership

Shareholders own the shares that are issued by a corporation. The corporation own assets and if you own a certain percentage of a company’s shares, it would be incorrect to state that you own a fraction of the company. Learn more about best Canadian stocks here.

The assertion is that you completely own a specified percentage of the company shares. Shareholders are not at liberty to do whatever they want with corporations and their assets. It is essential to distinguish between control and ownership.

Significance of Shares

Considering that shares are not the ownership rights that some people may think they are, it is important to understand what owning stock entails. It entitles you to vote during shareholder meetings, be a recipient of the company profits or dividends if they are distributed as well as the right for shareholders to sell shares to other entities.

Major Shareholders

If you are a major shareholder, your power to vote increases in and you can control the direction of the company indirectly by appointing the board of directors. When a company purchases another, this voting power is apparent as the company that makes the acquisition purchases all the shares. Increasing the corporation’s value is a core responsibility of the board of directors. It does this by hiring professional officers or managers like the CEO or chief executive officer.

Ordinary Shareholders

Ordinary shareholders do not usually regard managing the company as an issue. Being a shareholder entitles you to a portion of company profits that form the basis of stock value. Owning more shares increases the portion of profits that you get.

However, not all stocks pay out dividends as profits are reinvested back into the company. Retained earnings still reflect stock values. Stocks are also known as equities and companies issue them to raise capital and carry out new projects or grow the business. 

Published by Lucy Jones

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