A share of stock represents partial ownership in the particular company or corporation for which shares are issued. Issuing stock is one way a company can grow and increase its earning potential. The stock is firstly sold through an Initial Public Offering (IPO).
Although a single share of stock represents a very small piece of ownership, as a shareholder you may be entitled to vote on important company matters, and you are entitled to receive dividends (earnings) from the company’s profits. Since a single share represents such a small portion, stocks are typically sold in batches of 100 shares.
Common stock and preferred stock are the two primary types of stocks sold. As a common stockholder, you have a vote in company decisions and you receive dividends, usually quarterly. As a preferred stockholder, you have a higher level of ownership but usually cannot vote, although you do receive minimum dividends (received before common stockholders) or sometimes guaranteed dividends.
Generally, the board of directors of a corporation determines the percentage of profits that are distributed as dividends. Dividends may either be paid in cash or as additional shares for reinvestment into the company.
Based in California, Debbie Donner is a freelance online writer who primarily writes articles related to personal finance. Donner received a Mensa scholarship in 2006 while attending California State University, Fresno. She holds a Bachelor of Arts degree in liberal arts and a multiple-subject teaching credential.