Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. To start with, stock holders do not own corporations; they own shares issued by corporations.

But corporations are a special type of organization because the law treats them as legal persons. In other words, corporations file taxes, can borrow, can own property, can be sued, etc.

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A corporate office full of chairs and tables belong to the corporation, and not to the shareholders. This distinction is important because corporate property is legally separated from the property of shareholders, which limits the liability of both the corporation and the shareholder. If the corporation goes bankrupt, a judge may order all of its assets sold — but your personal assets are not at risk.

The court cannot even force you to sell your shares, although the value of your shares will have fallen drastically. What shareholders own are shares issued by the corporation; and the corporation owns the assets.

Shareholders cannot do as they please with a corporation or its assets. If you own a majority of shares, your voting power increases so that you can indirectly control the direction of a company by appointing its board of directors. This becomes most apparent when one company buys another: The board of directors is responsible for increasing the value of the corporation, and often does so by hiring professional managers, or officers, such as the Chief Executive Officer , or CEO.

For ordinary shareholders, not being able to manage the company isn't such a big deal. The more shares you own, the larger the portion of the profits you get.

Many stocks, however, do not pay out dividends , and instead reinvest profits back into growing the company.

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These retained earnings , however, are still reflected in the value of a stock. Stocks — sometimes referred to as equity or equities — are issued by companies to raise capital in order to grow the business or undertake new projects.

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There are important distinctions between whether somebody buys shares directly from the company when it issues them in the primary market or from another shareholder on the secondary market.

When the corporation issues shares, it does so in return for money. Companies can instead raise money through borrowing, either directly as a loan from a bank, or by issuing debt, known as bonds.

Bonds are fundamentally different from stocks in a number of ways. First, bondholders are creditors to the corporation, and are entitled to interest as well as repayment of principal. Creditors are given legal priority over other stakeholders in the event of a bankruptcy and will be made whole first if a company is forced to sell assets in order to repay them.

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Shareholders, on the other hand, are last in line and often receive nothing, or mere pennies on the dollar, in the event of bankruptcy. This implies that stocks are inherently riskier investments that bonds.

Find out which online broker offers the best educational tools here. The same is true on the upside: The greater risk attributed to stocks has generally been rewarded by the market. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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By Adam Hayes, CFA Share. Different Types Of Stocks Stocks Basics: How Stocks Trade Stocks Basics: Trading Stocks and Order Types Stocks Basics: Valuing Stocks Stocks Basics: We delve into common stock owners' privileges and how to be vigilant in monitoring a company.

Without a doubt, common stocks are one of the greatest tools ever invented for building wealth. Read on to learn more about the nature of stocks and the true meaning of ownership. Cash dividends are paid to shareholders when a company decides not to use the money for operations, but instead, transfer economic value to its shareholders.

The shareholder equity ratio shows how much money shareholders will receive if a company has to liquidate its assets. Equities and corporate bonds often play a significant role regarding the diversification of an investor's portfolio. We put both asset classes in contrast. Learn about how the way a company keeps its management in check can affect the bottom line. You may participate in both a b and a k plan.

However, certain restrictions may apply to the amount you can Generally speaking, the designation of beneficiary form dictates who receives the assets from the individual retirement Discover why consultant Ted Benna created k plans after noticing the Revenue Act of could be used to set up simple, Purchase life insurance in your qualified retirement plan using pre-tax dollars. Be aware of other ways that life insurance Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.

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