When a company is just starting out, it typically relies on the capital of investors to stay afloat, but as the company grows and expands, it has the option to go public and split the capital into shares. Shares are the financial pieces of a company, which have been divided up among the shareholders. Each share represents a unit of ownership within the company. For example, if a corporation has 10,000 shares and you own 5,000 of them, then you own 50% of the company. Shares are typically sold in the public market if the company needs to raise money, and as the company makes or loses capital, each share fluctuates in value.
Shares used to be printed on paper as a certificate, but these have been digitized in recent years so make buying and selling shares much more efficient.
Companies that choose have their assets divided have two options: common and preferred shares.
As the name suggests, common shares are the most common type of share companies choose to issue, but it’s also more of a gamble to invest in because the shareholder is entitled to dividends but not the same benefits as preferred stocks. When investors purchases common shares, they are a part of the company and have a voice in shareholders meetings. Common shareholders have the ability to continue to purchase more shares in order to maintain the same percentage of the company, so as more shares are issued, they can choose to purchase more to keep their holding in the company.
Unlike common shares, preferred shares does not allow the investor the ability to have a say in shareholder’s meetings, but it does give them regularly paid out dividends that take precedence over those that have common shares. If the investor chooses to sell his or her shares of the company, they will likely receive a better price than that of a common shareholder. Preferred shares to have some insurance if the company declares bankruptcy because preferred shares are paid out before the common shares.
Buying and Selling Shares
If you’re not a broker, you’re going to need to go through a broker or brokerage service in order to buy and sell shares. When you’re very new to investing in the stock market, it’s recommended that you go to a reputable financial advisor to get a handle on what to invest in within the stock market. Having a diversified portfolio that is not too focused on any given sector will allow you to strike a balance across your investments.