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Stocks and Shares
Written by Kenny Foo   
Thursday, 25 December 2008 18:56

Stocks and Shares or sometime also referred to as equity share means a share of ownership in a corporation or company. It is originated from a model of a small company with multiple owners. For instance, a small company with 4 different owners and each of them owns 25 % of the company share. In this case, each owner will need to provide 25% of the company capital and will be entitled for 25% of the dividend from the company.

For large corporation, to increase the stock's liquidity and make it easy for trading, stocks market served as a place for investors or shareholders to trade their stocks and shares.When investors buy stocks and ordinary shares, the investors own part of the company and have the right to entitle for enjoy the benefit that owners should have, such as vote at general meetings, dividend from the company's earnings and more. Each share is a small stake in a company and the investor can buy small or large number of lots depending on the amount of money the investor have.

As a shareholder, you can benefit from the profits earned by the company in the form of dividends paid to you and also from the growth in the value of the company.The growth in the value of the company also referred to as capital growth or capital gain.On the other hands, the shareholder needs to bear the risks of buying shares too.If the company performed poorly, the company might fall in value and the shareholder might not receive any dividend from the company. The performance of the stock market as a whole and the country's economic situation are factors that might affect the price of their shares. It is also possible that the investors may lose their entire investment if the company goes out of business. If the demand is lacking, the investors might find it difficult to sell their share too.Therefore, it is important for investors to select the right companies to invest in.

The reason for corporation to issue shares to public is to raise funds to operate and expand its business without having to borrow the money from the other sources such as banks. If a corporation borrows money from bank, despite the company is earning or not, the company will have to pay interest to the bank.By raising fund thru shares and stocks, the company has the right to choose to distribute dividends or not despite they are earning or not. From corporation perspectives, raising fund thru shares and stocks will be a better option than borrowing from banks.

For summary, shares and stocks are a win-win relationship for investors and corporations as corporations can raise fund to expand their business while investors can benefit from the earning of the corporation thru the paid out dividends and capital growth in the value of the corporation.

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Last Updated ( Saturday, 31 January 2009 12:25 )
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