Defining Stock

A company's stock represents the original capital paid into the business by its founders and can be purchased as shares. Shareholders have the right of preemption, meaning they have the first chance to buy newly issued shares of stock before the general public. By the end of this section, you will be able to explain what it means to own stock and describe some of the rights of shareholders.

Ownership Nature of Stock

The stock of a company represents the original capital paid into the business by its founders and can be purchased in the form of shares.


LEARNING OBJECTIVE

  • Describe the ownership nature of stock

KEY POINTS

    • The stock (capital stock) of a company or business entity is equal to the original capital paid into the business by its founders.
    • Stock serves as a security for creditors and investors in the business. While it may fluctuate in value, it is different from the assets and property of a business.
    • A shareholder legally owns share of a stock in a public or private corporation, and has certain rights with regards to the company because of share ownership.

TERMS

  • shareholder

    A shareholder legally owns at least one share of stock in a company, and has rights with regards to the company because of this

  • Stock

    The stock of a company represents the original capital paid into the business by its founders. It serves as a security for investors.


The Ownership Nature of Stock

The capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and assets of a business, both of which may fluctuate in quantity and value. Stock of a company is valued according to market demand and overall business health and this value will fluctuate over time. Ownership of stock represents a stake of ownership in the business entity. The stock is a security that represents equity in the company.

Ownership of shares is documented by issuance of a stock certificate . A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, It also specifies other aspects of the shares like the par value or class of the shares. Other documents will specify what rights come with ownership of certain classes of stock.

Ownership of shares is documented by the issuance of a stock certificate and represents the shareholder's rights with regards to the business entity.


Stakeholders

A shareholder or stockholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, labor, suppliers, customers and the community are typically considered stakeholders because they contribute value and/or are impacted by the corporation.


Source: Boundless
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