Ownership Nature of Stock
Stock ownership was traditionally handled by the issuance of physical certificates. Physical ownership is not common today; technology has replaced physical certificates or stocks with digital versions.
Learning Objective
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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 It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors.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.
1903 stock certificate of the Baltimore and Ohio Railroad
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, http://oer2go.org/mods/en-boundless/www.boundless.com/finance/textbooks/boundless-finance-textbook/stock-valuation-7/defining-stock-70/ownership-nature-of-stock-319-3794/index.html
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