Stock shares are units of ownership in a company, granting shareholders proportional rights to assets and earnings.
When you buy stock shares, you purchase a portion of a company's equity. This makes you a part-owner, entitled to a fraction of the company's profits through dividends or capital gains when the stock price rises. Companies issue shares to raise capital for expansion, operations, or debt repayment.
| Type | Description | Voting Rights |
|---|---|---|
| Common Stock | Most prevalent type; holders vote on corporate matters and receive dividends if declared. | Yes |
| Preferred Stock | Prioritized for dividends over common stock, often with a fixed rate, but typically lacks voting rights. | No |
| Class A vs. Class B | Some companies issue multiple classes, often with different voting rights (e.g., Alphabet's Class A and Class B shares). | Varies |
Companies issue stock shares primarily to raise capital without incurring debt. For example, Tesla issued additional shares in 2020 to fund expansion projects, including Gigafactories and vehicle production lines. This method allows businesses to grow while spreading risk among investors.
Many people confuse stock shares with bonds. Bonds are loans to the company, whereas stock shares represent ownership. Unlike bonds, which pay fixed interest, stock shares offer variable returns based on company performance., stock prices fluctuate with market demand, not solely on company profitability.
In August 2020, Apple conducted a 4-for-1 stock split, converting each existing share into four. This lowered the share price, making it more accessible to smaller investors. Despite the split, the total value of shares outstanding remained unchanged. This move increased liquidity and broadened Apple's investor base.
Unlike bonds, which are debt instruments, stock shares represent equity ownership. Mutual funds pool money from multiple investors to buy diversified portfolios of stocks and bonds. Exchange-traded funds (ETFs) trade like stocks but track indexes or sectors. Stock shares offer higher potential returns but come with greater volatility compared to bonds or savings accounts.
For more details on how stock exchanges help trading, see what does stock exchange mean.