1 – M1L2 01 Stocks V6

You’ve probably heard of stocks and shares before. In this lesson, we’re going to discuss stocks and stock prices. We’ll also clarify the meaning of some of the words you’ll hear when discussing them. Shares of stock represent fractional ownership in a company. If you own one share of a company stock and the stock has been split into eight shares in total or eight shares outstanding, you own one-eighth of the company. These days however, companies split their stock into millions or even billions of shares. Facebook for example, has issued just under three billion shares, while Alphabet, the company that owns Google, has issued about 700 million shares. But what does it really mean to own part of a company as a shareholder? Can you take the company car out for a spin? Not usually. There are actually two types of stock, common and preferred stock. Shareholders who own common stock usually get a portion of the company’s profits in the form of dividends if the company distributes them. A dividend is a payment made by a corporation to its investors, usually as a distribution of profits. Shareholders also get the right to vote on matters like who should be on the company’s board of directors. If the company is liquidated due to bankruptcy, they also get a portion of the remaining assets after all other stakeholders are compensated. Generally, ownership of shares in publicly traded companies, companies whose stock is owned and traded by the general public, entails what’s called limited liability. In part, limited liability means that shareholders cannot be made to pay the company’s debts if it goes bankrupt. Shareholders who own preferred stock get a slightly different deal, they’re promised a fixed amount of income each year and get paid before owners of common stock get paid dividends, but they usually do not have voting rights. But of course, one of the main benefits of owning stock is the potential opportunity to profit from selling it after it’s value has increased. These increases in value are called capital gains.