Stock

The definition of stock in a business and the main types of stock

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The stock or capital stock of a business entity represents what founders have originally paid or invested as a capital of the business. It acts as a security for the creditors of a business since there is no way to withdraw or detriment them of the creditors. Stock is different from the property and the assets of a business which may change in quantity and value.

The stock of a business is divided into shares, the total of which must be mentioned at the time of business formation. Given the total amount of money invested into the business, a share has a certain claim face value, commonly known as the par value of a share. The par value is the de minimis (minimum) amount of money that a business may issue and sell shares for in many jurisdictions and it is the value acting as capital in the accounting of the business. In other jurisdictions, however, shares may not have an associated par value altogether, which is often called non-par stock. Shares represent a fraction of ownership in a business. A business may declare different types (classes) of shares, each having distinctive ownership rules, privileges, or share values.

Ownership of shares is registered by issuance of a stock certificate. A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, and other specifics of the shares, such as the par value, if any, or the class of the shares.

Used in the plural, stocks are often used to refer to shares. Traditionalist demands that the plural stocks be used only when referring to stock of more than one company are rarely heard nowadays.

Types of stock

Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be used in corporate decisions. Preferred stock differs from common stock in that it normally does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preferred stock is preferred stock that includes an option for the holder to turn the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK).

Although there is a many similarities between the stocks of different companies, each new equity issue can have legal clauses attached to it that make it dynamically different from the more general cases. Some shares of common stock may be issued without including the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. Note that not all equity shares are the same.

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