First, What is a "stock/share"??
Ok, what is a Stock? A stock can be identified as the smallest portion of ownership of a company. Meaning, if you own a stock/share of a company, congratulations!! you're a proud OWNER of a company. Yes, an owner. But this is conditional, let us see how.
There are basically two main types of stocks/shares. Namely;
1) Ordinary Shares (we don't call 'Ordinary Stocks') and'
2) Preference Shares (not 'Preference Stocks')
Let us a look a little deeper into these two types.
Ordinary Shares
This is the most important type of shares in a company. Because holders/investors of Ordinary Shares are the REAL OWNERS of a company. Yes, Ordinary Shares give the investor the opportunity to participate in company meetings, vote at such meetings and most importantly be eligible to be voted as a director of the company. The only catch with Ordinary Shares is that it involves a little risk of not being eligible for a fixed dividend (Dividend is a payment made by a company to both Ordinary and Preference shareholders based on the profit made by the company during a financial year) If by misfortune the company ends up making losses, Ordinary shareholders may not be eligible for any dividends for that year. Simply it's a waving rate of dividends. No profits, no dividends; small profits, small dividends; high profits, high dividends. Unlike Preference shares, Ordinary shareholders will be eligible for high dividends when the company makes high profits. Other than that an investor should always eye for Ordinary shares.
Preference Shares
This is a more non-risky mode of investment. Preference shareholders are eligible for a fixed amount of dividends for a financial year. Even though the company makes profits or losses they will receive their share of dividends without trouble. But, preference shares lack all other benefits offered by Ordinary Shares, such as attending for company meetings, voting power and being elected for the director board. So an investor who likes peace at mind should eye for Preference shares.
Issuing Shares
Only one type of business organization is allowed to issue shares to the public. That is a "Public Limited Company". A Public Limited Company (PLC) by definition is described as a company that is authorized to issue shares to the public. It's not like that other companies cannot issue shares, Private Limited Companies, Co-operative Societies etc can too issue shares, but NOT to the general public. General public is basically the population of a country like you and me. :) Even not all PLCs issue shares to the public. PLCs are of two types;
1) Quoted Public Limited Companies
2) Unquoted Public Limited Companies
"Quoted" refers to the state of enlisting at the stock market of a related country. So basically only Quoted PLCs issue shares to the public.
Share/Stock Value
At first shares are issued at their "Par Value", that is the value at which the founders of the company issue the shares at the formation of the company thought an Initial Public Offering (IPO). The based on the performance of the company, with time and with the demand to the shares, the share price may increase or decrease. If it's increased, the increased amount is considered as a "Premium Value".
This article should give the reader enough basic idea about Shares/Stocks. We'll look into more of the stocks and stock trading in future articles.
