What is stock?


Quick Answer

Stock is an ownership share in a company, explains Daily Finance. Companies issue stock to the owners of the company. Individuals or entities who own stock maintain an equity stake in the company.

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What is stock?
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Full Answer

Ownership shares of a company are determined by the issuance of stock, as reported by CNN Money. The amount of equity one invests in a company is proportional to the shares of stock he owns in the enterprise. Therein, stock is a proxy for ownership, and the proportion of stock an individual or entity owns determines the ownership stake.

The manner in which stock is issued varies, according to Daily Finance. Privately held companies may issue shares to a limited number of owners or principals in a closely held organization. The owners finance the company and determine its direction. As a small company evolves, however, it may require additional capital. One means of raising capital is through the sale of additional shares of stock.

Large companies often rely on stock issuance for raising capital, as reported by Daily Finance. Publicly held companies sell shares on the open market through an exchange as a means of raising the funds necessary for growth and expansion of operations. Investors may purchase shares if they feel the company is valuable or promises a favorable return on their investment. As more shares are issued, however, the equity value of the shares become diluted. As such, the share value of publicly traded companies is volatile and more subject to investor emotions than the shares of closely held corporations.

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