Question ~ What Is a Stock?
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Answer: What is stock?
The stock of a company is a legal certificate that represents ownership of the company, its business and assets. An investor receives shares of stock in exchange for making an investment in the company. If the company has 50 shares of stock outstanding, each share is a 2% ownership interest in the company. All corporations, large and small, issue stock to their investors. The shareholders are also called stockholders. Stockholders always have the right to elect a board of directors, to vote on some company policies and to receive dividends whenever paid from the company earnings. When a company is liquidated, the shareholders are entitled to the company assets after its creditors are paid. The stockholders do not run the company. Instead, they elect a board of directors to run the company. Stockholders are not liable for the debts of the company, but they can lose their investment if the company fails.
If a company stock is listed on a public stock exchange, people may buy and sell existing shares of company stock through the exchange. Shareholders may also buy and sell their shares of stock in private transactions, person to person. From time to time, when the business wants to raise new capital, it will issue and sell new shares of stock to the public. The value of a share of company stock changes over time. It increases when company earnings increase and when the company outlook is favorable.
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