The Defenition of Stock Ownership

With the stock market the source of daily news, and increasing numbers of households owning stocks, it's important to understand how owning a stock works, and what it means to you as the stockholder. When you buy shares of stock in a publicly traded company, you become an owner of a part of that business and are legally entitled to share in the profits. If you purchase 1,000 shares of ABC Company and they have 2,000,000 total shares outstanding, you officially own .05% (1,000/2,000,000 = .05%) of the assets, liabilities, and profits of the company. You are entitled to .05% of the yearly profits that the company makes in their business operations.

Since you are entitled to share in the profits of the business, every three months (or quarter) or at the end of the year, the company is not going to mail you a check for your .05% percentage share of the profits for that year, instead they may opt to pay dividends. Dividends are amounts that are predetermined by Company management, are paid on a per share basis, and return profits earned to the individual shareholders. For instance ABC Company may pay a dividend of five cents ($.05) per share on a yearly basis. That means every year you own the stock, you would get a check from the Company for $50 (1,000 x $.05 = $50.00).

As an owner of the company you are also entitled to vote on the future direction of the company at an annual shareholders meeting. If you only own 1,000 shares, you'll still be able to participate in the direction of the company, but will only be allowed to vote yes or no on directives decided by the Company. Due to the large number of shareholders though, most companies assume that each individual shareholder won't be able to attend the annual meeting, so instead voting forms (known as proxy forms) are mailed out to shareholders. Each shareholder has an opportunity to cast their vote for relevant issues like; who will lead the company (the Board of Directors), what strategic initiatives should be undertaken, and what amount of future dividends should be paid to shareholders. If you own a significantly large percentage of the stock in a company, you can be entitled to make business decisions that affect the future of the company by becoming a member of the Board of Directors.

Owning stocks is a great way to invest in individual companies that you believe will make profits in the future, thereby increasing the price other investors are willing to pay for the right to own the stock. When the stock becomes more desirable, the price will go up. Owning a stock that has a strong future growth potential and that will increase in price will bring greater economic benefit to you, the shareholder.