What is a “Stock?”
It is a share of a company/business held by an individual or a group. Businesses raise capital by issuing stocks and give the stock owners/shareholders to partial ownership of the business/company.
A stock is a type of a investment security that signifies ownership in a business/corporation and represents a claim on part of the business’s assets and earnings.
Thus as a owner, company’s shareholder has a claim to a part of the corporation’s assets and earnings. For example, if a company has 100 shares of stock outstanding and one person owns 5 shares, that person would own and have claim to 5% of the company’s assets.
Common Stock and Preferred Stock are two main types of stocks.
Common stock allows the owner to vote at shareholders’ meetings and to receive dividends while a Preferred stock holder generally does not have voting rights, but has a higher claim on assets and earnings:
– the owners of preferred stock receive dividends before common shareholders and
– have priority in the event that a company goes bankrupt and is liquidated.