Demystifying Stocks

A company is a vast organization that is built mainly for the purpose of earning profits by providing products and services to the society. Setting up of a company and carrying out the various activities in the regular functioning requires huge funding and investment. It is practically not possible for one or two individuals to run a company of such a vast nature and bear all the financial obligations and duties. To solve this problem comes the concept of SHARES.

The total financial requirements of a company is broken into thousands and hundreds of thousands of small pieces or fragments of ownership, which are known as shares. Each share is representative of a percentage of ownership in the entire company. The management, outside investors and even the employees of the organization can purchase shares of the companies that they believe to be a good investment option. Each shareholder has a right to dividend in return for the shares they hold. They may also have voting powers attached to the shares. Such shareholders are owners of Equity Shares.

Now, when huge companies, owing to its dynamic structure, gets itself public, that is, these companies get listed on the stock exchange and their shares start getting publicly traded on the exchanges, then these shares come to be known as Stocks. The terms ‘equity’ and ‘shares’ are equivalent to stocks. To put in Layman’s language, Stocks are nothing but a kind of security of the company which gives its owner a right to claim over the assets and liabilities of the company depending upon the extent of its ownership and any other right as may be attached to the stock. The extent of its ownership refers to the number of stocks held. More the no. of stocks held, greater is the right, and vice-versa.

Thus, the owner of a stock is one of the many owners of the company and he has a claim on the company’s assets and earnings.

Click here for government certification in Accounting, Banking & Finance