Dropping Knowledge: What Exactly is Stock?

January 15, 2011

“Stock” is a general term that refers to some sort of equity interest in a company, public or private.  When organizing a corporation of any type, that corporation is financed by equity (stock), debt (bank loans, bonds, debentures) or, usually,  some combination of both.  We’ll get to the debt side later, so when we are talking about equity, we are talking about “stock.”  There different types of stock, but the real equity interest in a corporation is called “common stock.”  Each share of common stock normally comes with vote at annual and special meetings and represents a percentage of ownership in a company.

Now, the number of a company’s outstanding shares differs and is important for voting purposes.  For instance, Wal-Mart (formally, Wal-Mart Stores Inc.: WMT), reported in March ’10 that it had 3,759,007,514 shares outstanding.  Yes, over 3.7 billion shares.   So, even if you own 5,000 shares (worth about $270,000), you own a very, very small percentage of Wal-Mart.  On the other hand, Ma and Pa Kettle’s Kettle Corn Inc.* may only have 100 shares, and they are all owned by Ma and Pa Kettle, and therefore own %100 of that company.

Point is, every company has stock, but the ratios of who owns what is different for each situation.  Nevertheless, all of these stockholders have certain rights.

*To my knowledge, this is a fictional company, if it is not, I make no representations about knowing any particulars about the company.


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