What are stocks?

My previous post tells about Microsoft acquiring Yahoo's outstanding stocks for $31. This news may be of interest to a few who knew what it meant. Well, to give a few information to those who don't know yet, what are stocks really?

Wikipedia defines a stock as "the capital raised by a corporation through the issuance and distribution of shares." Before I explain, let us understand the different types of business. If I want to have a business from which I solely own, that is a "sole-proprietorship" type of business. If on the other hand, I have a partner or two in a particular business, the type of business would then be called a "partnership". If a business has many owners, then it is called a corporation.

A corporation must have at least 5 members (owners). These owners are called shareholders. Each will have a share of ownership with the company depending on how much they have invested. This "share of ownership" is called a "stock". If you are a shareholder, you have a share of the company's earnings and the right to vote who gets to sit in the board of directors. The job of the board of directors would be to oversee the company's management. They establish policies and they decide whether dividends (a shareholder's portion of a fraction of the company's earnings) are to be issued.

For those who are interested in stocks or investments, a good read will be from Investopedia.com. Although I have studied some of these in business school, Investopedia.com has been my source for latest information regarding stocks and matters alike.


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