Stocks

Overview

Stocks refer to shares of ownership of a company or business. These stocks can be owned by private investors or by the general public. A company can sell stocks to raise income for the company. If your business is a public company, shares can be traded in the public stock exchange.

People who purchase a company's stocks or shares become non-managing company owners. They then earn the right to participate in annual shareholder meetings. Shareholders also receive reports on the financial health of the company. Reports typically provide all details about the business activities of the company in the previous year and may discuss future plans or ventures.

There are two types of stocks, namely common and preferred stock. A common stock describes the general shares that are owned by a shareholder. A preferred stock provides the share holder with a fixed dividend.

How It Works

Stocks can be traded publicly or privately through a stock exchange. There are many limitations to privately held stocks. They cannot be easily transferred from one stock holder to another. A private stock option is usually held by family members of the company owners, and there are generally restrictions that prohibit sales to outsiders. These limitations are specified in the bylaws established by the corporation.

A public stock can be traded in a public stock exchange. Some of the well known stock exchanges in the United States include The National Association of Securities Dealers Automated Quotations (NASDAQ), New York Stock Exchange (NYSE), and American Stock Exchange (AMEX.) Companies may prefer to use difference stock exchanges.

For the stock of a company to be traded in a public trade exchange, the company needs to meet certain accounting and fiscal guidelines. They should submit a detailed description of the company, products, services, officers, managers, and marketing plans for approval. After the approval process is completed, the company can present this information to the investment advisors who evaluate all the given details. After evaluating a company, investment advisors will issue a rating and company recommendation to their customers.

Benefits

A company can raise money for different ventures by offering public shares. It also helps open up the company to new investors. The money can be used for expansion, business activities, or transitions into new fields.

Costs

The cost of the share depends on the financial condition of the company. Stock values rise when companies are in good health and are generating profits. Economic conditions will impact stock values.

Timing

You can sell shares of your company when your company is planning to go public. If your company is planning to start a new project or venture, then you should consider selling shares to the general public.