When you buy a stock, you’re basically buying a small piece of a company. These pieces are called shares. Owning shares means you have a right to a portion of the company’s profits—how much depends on how many shares you own.
Stocks are mainly bought and sold on public stock exchanges, which are tightly regulated by the government to help protect investors from scams.
Why Do Companies Issue Stock?
Companies sell stock to raise money so they can run and grow their business. If you buy stock in a company, you’re called a shareholder. This means you have a claim to part of the company’s profits and assets, depending on how many shares you own compared to the total.
Let’s say a company has 1,000 shares and you own 100 of them—that gives you 10% ownership of the company’s profits and assets.
Do Shareholders Actually Own the Company?
Not quite. Shareholders own shares, but the company itself owns its assets. In the eyes of the law, a corporation is like a separate person—it can own property, pay taxes, borrow money, and even be sued. So even though you’re a part-owner through your shares, you don’t directly own the company’s buildings, furniture, or money.
This legal setup also protects you. If the company goes bankrupt, your personal property isn’t at risk. You might lose money if the stock price drops, but a court can’t force you to sell your stuff. On the flip side, if a big shareholder goes bankrupt, they can’t use the company’s assets to pay their debts either.
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What Do Shareholders Really Own?
You own the shares—not the company itself. For example, if you own 33% of a company’s shares, that doesn’t mean you own one-third of the company. You just own one-third of the shares. This is called the separation of ownership and control.
Owning shares gives you certain rights:
- You can vote in shareholder meetings.
- You may receive dividends (when the company shares profits).
- You can sell your shares to someone else.
If you own most of the shares, your votes carry more weight. That means you could have a say in how the company is run, like helping choose the board of directors. The board makes big decisions and often hires managers like the CEO to handle daily operations. Regular shareholders don’t run the company themselves.
The key benefit of owning stock is that you’re entitled to a share of the company’s profits. The more shares you have, the more you earn. Some companies don’t pay dividends and instead reinvest profits to grow the business, but this still increases the value of your shares over time.
Common vs. Preferred Stock
There are two main types of stock: common and preferred.
- Common stock usually lets you vote and receive dividends.
- Preferred stock typically doesn’t come with voting rights, but you get paid dividends first and have a better chance of getting money back if the company goes bankrupt.
Sometimes, companies issue new shares to raise more money. When this happens, your share of ownership gets smaller unless you buy more. On the flip side, if a company buys back shares, the value of your existing shares can go up.
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How Are Stocks Different from Bonds?
Both stocks and bonds help companies raise money—but they work differently.
When you buy stocks, you become a part-owner of the company. When you buy bonds, you’re lending the company money. Bondholders get paid back with interest, and they have priority over shareholders if the company goes bankrupt. This means bonds are usually safer than stocks, but they may offer lower returns.