Business Insight

Stock vs Share – The Differences You Need to Know

People often think that stock and share mean the same thing but there is a clear difference between the two. Despite the distinction, they are often used interchangeably. Here is what they actually mean;

Stock

A stock, which can also be called equity, refers to an investment security that represents the units of ownership in a company. It is the partial share of ownership interest in a company in the hopes of capital appreciation, dividend payments and right to vote. 

A company may issue stock to attract investors to buy a fractional ownership interest in the company for many reasons, including;

  • Launching new products
  • Paying off company debts
  • Expanding into new markets
  • Buying new equipment or enlarging facilities etc.

There are a number of stocks, but common stock and preferred stock are among the most known. In addition to the two, some companies issue different classes of stocks anyways.

Common stock entitles its holders to a fractional ownership interest with a voting right at shareholder meetings, usually a single vote per share of stock.

The holders of this stock are the last to receive dividend after all other financial interests have been met by the company (i.e. payments to creditors, debt-holders, preferred stockholders etc.).

On the other hand, preferred stock holders do not have the right to vote at shareholder meetings but are entitled to dividend payments before common stock shareholders.

Also, in case of bankruptcy and a company is liquidated, preferred stock holders are given the priority ahead of common stockholders in all financial settlements.

Share

A share is a unit or demonization of a stock used to measure the ownership interest in a company. When you buy a share of a company, the individual becomes a fractional owner of that company.

Unlike stocks, shares actually helps you to calculate the value of your stake in the company

Common shares and preference shares are the same as common stock and preference stock.

As a takeaway; shareholder is generally the preferred usage for ownership of shares in a company whiles a stockholder could own either just shares or inventory or both in a company.

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