The terms stocks and shares are often used interchangeably because they relate to the same subject but have different meanings. We’ll discuss the definitions of the two terms stocks and shares and their differences.
Stocks and Shares
What is a Stock?
Stocks are financial assets that represent a portion of ownership in one or more corporations. Simply put, when you buy stock in a company, you buy a percentage of that company’s ownership. Stocks typically pay dividends to investors monthly, quarterly, or annually, depending on the earnings of the issuing company.
Types of Stocks:
Common Stock – This is the most common stock as its name gives off. Most stocks investors have in their possession fall under the category of common stocks. In addition, these types of stocks give voting rights to their stockholders.
Preferred Stocks – This type of stock does not provide voting rights, but it is reimbursed before common stocks in the case of liquidation.
Class A Stock – This type of stock provides more voting rights than Class B stocks. Besides for this minor difference, Class A and B stocks are pretty much the same.
Class B Stock – This is a type of common stock that offers fewer voting rights.
What is a Share?
These shares represent a portion of a company’s stock. Let’s break it down from its source, which is stocks. A stock is broken into shares; each share is a piece that represents the company’s ownership. These shares fall under two categories.
Public Shares – These types of shares are always on the stock market. Investors can enter the stock market and buy or sell public shares easily.
Private Shares – These shares don’t give investors the ease and hassle-free experience like private shares. They are also not on the stock market; therefore, selling and buying them can be a bit trickier.
Private companies can sometimes become public companies. When this occurs, the company’s shares transition from private to public.
Types of Shares:
Ordinary Shares – This share is very similar to common stocks.
Cumulative Preferred Shares – These are preferred shares that require payment of missed dividends before other types of shares.
Deferred Shares – In the case of bankruptcy, these shares have no rights to assets until preferred and common stockholders have been given their money.
Non–voting Shares – These shares do not include voting rights and are most often issued to family members, employees, or primary shareholders.
Preference Shares – These shares stand in the same line as preferred stocks.
Redeemable Shares – The company repurchases this type of share after a specific date or event.
Redeemable Preference Shares – These types of shares are like preferred stocks with the addition of a call option.
Benefits of Shares:
The reason why investors buy shares is to make a profit from them eventually. There are two ways to make a profit from shares, either through capital gains or income. The profit from capital gains is through selling a share whose value has increased. In most cases, this happens when the company is successful and is making a steady income. An additional way is to generate an income from owning shares. Some companies also pay dividends to shareholders or investors who own stock in the company.
How are they different?
Stock is a general term that refers to ownership in a publicly owned company or corporation. Whereas share refers more specifically to a small percentage of a company’s stock. When you purchase stock in a company, you are purchasing shares of that company’s stock. The term stock has no monetary value and can refer to one or more companies. Each share has a unique value and is in association with a specific company.
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