Stocks
A share is the minimum unit of a shareholder’s participation in the capital stock of a “corporation”. Shares must all have the same par value, that is, they must be shares of equal value. If you buy a share you become a partner or shareholder, meaning you own a piece of the company, with all the rights (you share in the profits) and burdens (you bear the losses).
The division of capital into many shares and their subsequent placement in the market allows the company to finance its business with equity and a saver, like you, to invest sums of money in a stock that can pay dividends and appreciate in value and/or lose value.
Shares can be of TWO TYPES:
Companies, in their bylaws, may provide for different categories of shares with differentiated administrative and economic rights, i.e., how you can participate in shareholder meetings and what share of profits you are entitled to.
- The receipt of dividends (the share derived from profits), if distributed by the company;
- The ability to cast his vote at shareholders' meetings;
- The ability to consult certain corporate books;
- The ability to challenge invalid shareholders' meeting resolutions.
By buying stocks, unlike bonds, you are not making a loan to the company, but you are providing risk capital.
Therefore periodic coupons provided by a stock (dividends) are not certain but variable and dependent on the evolution of the earnings of the issuing company and its distribution policy.
Another difference between stocks and bonds concerns the lifespan of these financial instruments. Equities have an indefinite maturity and can provide potentially unlimited cash flows over time and, in addition, provide no guarantee of recovery of the initial principal.
Bonds, on the other hand, have a well-defined maturity and, more importantly, have a clearly defined return for the buyer. The principal invested plus accrued interest is returned.