A stock, or equity, is a security which represents the ownership of a fraction of an issuing corporation. Units of stocks are known as shares, these shares entitle the holder to a portion of the corporation assets as the profits are proportional to the amount of stock they own. Corporations usually issue stock to raise funds to operate their businesses.

Stocks can be bought and sold on stock exchanges and are the bedrock of a number of individual investor portfolios. Stock trades have to comply with government rules and regulations which are created to protect the investors from fraudulent practices.

If a company has 100 shares of stock outstanding, and an individual owns 10 shares, that individual would have a claim to 10% of the corporations’ periodic earnings and assets. Shareholders do not own the company because laws treat corporations as a single individual. Corporations are seen as a single individual because it can possess assets, liabilities and can be sued. If an individual owns one third of a company, it would be wrong to assume that the individual owns one-third of the company. Rather, the individual would own one-third of the company’s shares. This is called “separation of ownership and control”.

Ownership of Stocks gives an individual the rights to vote in shareholder meetings, receive dividends and the rights to sell the shares to a different individual. The voting power increases with the number of shares owned; this means owning majority of the shares gives indirect control of the company’s direction by appointing its board of directors. The board of directors are responsible for increasing the value of a company.

There are two major types of stock which are common and preferred. Common stock entitles the owner with voting power at shareholder meetings and also receive dividends from the corporation. Preferred stockholders do not possess voting rights, though they are entitled to higher claim on assets and earnings than common stakeholders. Owners of preferred stock usually receive dividends before common shareholders and have priority if a company goes bankrupt and is liquidated.

New shares can be issued when there is a need for a corporation to raise extra money, lowers the ownership of rights of existing shareholders. Corporations can also participate in stock buybacks, which would be beneficial to the existing shareholders because they the values of share to appreciate in value.

Stocks are sold by companies to raise money to undertake new projects or to grow the business. Bonds are different from stocks in a way that bondholders are creditors to a corporation and are entitled to periodic interests along with the repayment of the money invested. The bondholders are prioritized over stakeholders when bankruptcy occurs and the company has to sell its assets. On the other hand, shareholders receive nothing in the case of bankruptcy, which implies that stocks are a riskier investment than bonds.

There are two ways to make money via stock ownership which are through dividends and capital appreciation. Dividends are company profits distributed in cash. If a company declares $10,000 dividend and has 1,000 shares outstanding, then the stockholders will get $10 for each share they own. Capital appreciation is the increase in the price of shares. If an individual purchases a stock for $20 and the stock is later worth $30, the stockholder would make $10 upon selling the stock.

Investments of all kinds come with a degree of risk. Stocks, bonds, mutual funds, and exchange-traded funds can depreciate in value if there is a decline in market conditions. When an invested is made, choices are made about what to do with your financial assets. Your investment value may rise or fall due to the market conditions or corporate decisions. Historically, stocks have outperformed other forms of investments over the long run.

A Stock represents fractional ownership of equity in an organization. It is different 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. The type of stock, common or preferred, held by a shareholder determines the rights and benefits of ownership.