Understanding Stocks For Beginners Part Three

In parts one and two of my primer course on stocks, I informed you that the stock of a business represents the original amount of money that went into founding it. Businesses divide stocks into shares, and each share represents a portion of ownership. I let you know about shareholders, who are people or companies that own one or more shares of stock in a joint stock company and “share ownership” of the company. I told you that they have special privileges depending on the class of stock they own, and that they will use their shares as votes in the election of members of the board of directors of the company.

Even if you owned fifty percent of a company’s shares and therefore own fifty percent of a company, you don’t have the right to use a company’s equipment, materials, building, or other property. This is due to the fact that the company is considered a legal person that owns all of its assets itself.

And even though owning shares means part ownership of a business, it does not mean responsibility for liabilities. If a company goes under and has to default on loans, the shareholders won’t be liable in any way. On the other hand, when it comes time to repay loans and debts, the creditors must be paid first, oftentimes leaving shareholders with nothing.

Shares of a company may be transferred from shareholders to other parties by sale, and stock markets have been established for trading shares and other derivatives. Although there are various methods of buying and financing stocks, investors will generally be represented by stock brokers, people who buy and sell shares of a wide range of companies.

Stock brokers can be full service, or discount. Full service brokers will charge more per trade, but offer advice when it comes to investment or personal finance. Discount brokers will offer little or no advice but charge less for trades. A third type of broker would be a bank or credit union. Another way to buy stock is to buy the stock directly from the business itself. If you own at least one stock, most companies will permit you to purchase shares directly from the company. To Be Continued In Part 4.

Mallory Megan works for Rapid Recovery Solution and writes articles on commercial collection agencies.