Stock is any of the stocks in which ownership of an organization is divided ownership. In common English, stock is referred to as a “security”. A single share in the stock represents actual fractional ownership in percentage of the whole stock owned by the corporation. There can be many kinds of stock existing in a corporation; common stock, preferred stock, original issue stock and warrants.
There are two main types of stock: common stock and preferred stock. Common stock has voting rights and is usually issued by the company to be traded in the open market. Preferred stock does not have voting rights but is usually sponsored by a bank. The shareholder will receive regular dividends for his stock subscription. However, if the company makes a profit, then the shareholder will be paid his profits instead of dividends.
Many corporations issue stock through the method referred to as the “book-entry system”. Here, all transactions in stock ownership are reported in the company’s book of accounts. This system is quite effective; it makes sure that the owner of a certain stock actually owns the asset. The book-entry system also allows the easy tracking and accounting of stock ownership and liabilities.
Stock ownership is different from the ownership of assets. For instance, when a corporation owns a plant, building or equipment, it does not own the plant, building or equipment. Instead, it just acquires these assets and makes money out of them. The stockholders will therefore receive a report of stock ownership each year. The report will show the value of their stocks at a particular date, i.e., the value of their stock.
Shares will be added or removed from the shareholders’ list, according to the wishes of shareholders. If a corporation wants to raise funds, a Board of Directors can issue an order referred to as a share issue. In such an order, the Board can issue either common or preferred stock. The Board usually issues such orders to increase the number of shares or to limit the number of shares that can be purchased by a shareholder.
A shareholder can also sell his shares to another shareholder. This can take place in two different ways. He may choose to give his shares to the company or to sell them to another person. Alternatively, he may choose to give his shares to a broker who will purchase them for him. When selling his stocks, a shareholder will have to pay taxes on the sale.