A corporation ultimately answers not to the CEO or even to the chairman of the board, but to its owners – the stockholders. "Stakes," "shares" and "stocks" all refer to the allocation of ownership in corporations. Put simply, your stake in a company depends on how many shares you own of its stock. While many people use these terms interchangeably, NASDAQ indicates that stakes, shares and stocks are not the same thing.
Understanding Corporate-Issued Stocks
Stock is the means by which a corporation distributes and recognizes ownership. Every corporation issues stock, and whoever owns that stock literally owns the corporation. That ownership may be divided among thousands or millions of people, but each is a legitimate owner, entitled to vote for the members of the board of directors and, in many cases, to collect a portion of the company profits as a dividend.
When people say they own "stocks," it generally means that they have purchased stock in several different corporations.
Shares of Ownership
Companies divide their stock into shares, with each share representing one "unit" of ownership. The more shares the company has "outstanding" – that is, issued and available for trading -- the smaller the slice of ownership each individual share represents.
For example, as of December 2021, IBM had about 897 million shares of stock outstanding. If you owned one of those shares, you would own a single unit out of the total shares of IBM. A company's "stock price" is really its per-share price. Shares are not always so straightforward because of options and
Read More: Does a Stock Split Impact Authorized Shares?
Stakes of Stock
Your "stake" in a company represents the total percentage of its stock you own. If you owned, say, 18 million of IBM's 897 million outstanding shares, you would have about a 2 percent stake in the company. The more shares you own, the greater your stake.
A stake of greater than 50 percent in a typical company will ensure control of that company. However, it's sometimes possible to exercise control over a company with less than a majority stake, depending on how the other stock is distributed.
Read More: What Is Market Value of Stock?
Types and Classes
Be aware that companies can and do issue different types and classes of stock, which can make some shares worth more than others and can affect the influence of a stockholder's relative stake.
Classes of stock are issued as A or B and determined by the issuing company. For example, a company might issue two classes of common stock. Class A stock might carry with it one vote per share, while Class B stock gives its owners 10 votes per share. (This is how the Ford family maintains control over Ford Motor despite holding only a small stake.) Class C shares are "executive" and issued as compensation within the company.
Meanwhile, many companies issue "preferred" stock. Preferred shareholders usually have no voting rights, but they are first in line to get dividends and would have a higher-priority claim on the company's assets if the company went out of business.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.