Stock

Stocks, also known as capital stock or shares, represent the divided ownership of a corporation. When a company is formed, its total ownership is partitioned into many individual units called shares. Owning a single share means you hold a fractional ownership of that entire corporation. This ownership is proportional to the total number of shares in existence.

This system allows a large business to be owned by many different people at once.

Ownership of stock grants specific rights to the shareholder, or stockholder. These rights often include a fraction of the company's earnings, which are distributed as dividends. Shareholders may also receive proceeds if the company undergoes liquidation, which is the process of selling assets to pay off debts. Most stockholders also hold voting power to participate in corporate decisions. This power is usually divided based on the number of shares a person owns. However, a shareholder's claim to assets is subordinate to the rights of the company's creditors.

Not all shares are identical, as companies can issue different classes of stock. Common stock is the most standard type and typically carries voting rights. Preferred stock is a different class that often lacks voting rights. Instead, preferred shareholders are legally entitled to receive certain dividend payments before common stockholders receive theirs. Some preferred stock is convertible, meaning it can be changed into common shares after a specific date. Some shares may even be issued with special rights or without typical voting rights.

Companies use stocks as a tool to raise capital for growth. A private company may need money for new projects or to sustain its operations. To get this cash, the company can perform an initial public offering, or IPO. During an IPO, the company sells shares to the general public through a stock exchange. This process turns private owners into many part-owners. As new shares are issued, the ownership percentage of existing shareholders is diluted. Conversely, companies can also buy back their own stock to return value to investors.

History shows that the concept of sharing ownership is very old. During the Roman Republic, government contractors known as publicani issued shares called partes or particulae. The Roman orator Cicero even noted that shares could have very high prices, implying a fluctuating market. In 1250, the Société des Moulins du Bazacle in France traded shares based on mill profits. In 1288, a Bishop in Sweden acquired a 12.5% interest in the Great Copper Mountain.

This transfer was documented in exchange for an estate.

Modern joint-stock companies emerged with famous trading entities. The English East India Company received a Royal Charter from Elizabeth I in 1600. This charter gave the company a 15-year monopoly on trade in the East Indies. Later, in 1602, the Dutch East India Company issued the first shares tradeable on the Amsterdam Stock Exchange. Between 1602 and 1796, this company traded 2.5 million tons of cargo using 4,785 ships. This era helped define how global trade and public markets would function.

There are also complex financial instruments called stock derivatives. A derivative is a contract where the price is based on an underlying asset, like a stock's price. Two main types are futures and options. A stock option gives a person the right, but not the obligation, to buy or sell stock at a fixed price in the future. A "call option" is the right to buy, while a "put option" is the right to sell. These tools allow investors to manage risk or speculate on price changes. Today, large entities like mutual funds and exchange-traded funds are often the largest shareholders in the world.