We often use terms that fall out of context – interchangeable perhaps. Similarly, shares and stocks might seem the same to you. The difference between the two is quite blurry to be precise. In general, both of them are used interchangeably. In financial terms, equities and specific securities that show ownership to a public company refer to stocks. Though these days the difference between shares and stocks has much more to with the syntaxes and is taken from the context in which they are utilized.
From the two of these words, stocks are more generic. They are used to describe a piece of the ownership of a single or more company. Contradicting this is the term shares. It is much more specific. It means it only refers to ownership of a certain company.
Understanding Shares and Stocks
With an example, let’s discuss more. Let’s just say – a man says he owns shares. The inclination to some people would be to say – shares in what company? In the same way, an investor would tell his broker to buy him 100 shares. When he says this, he refers to 100 shares in company X. But, if he says 100 stocks. This means he is saying a whole penalty of companies. This means 100 different ones. The phrase, I own shares could also spark to ask, shares of what. This means – what kind of investment. It might be a little confusing to understand. But let’s look at it a little more in-depth, can we?
Here are the definitions of the two terminologies, and they can help you understand the two better.
What are Stocks?
Let’s get ourselves a little more into the topic. To understand stocks, we have got to confine ourselves to equities. If you are wondering, what is equities, we’ll get you through. Equities mean the ownership of assets that could have debts or several other liabilities that are attached to them. Equity is basically the same as stocks.
Stocks are small units of ownership in a company. They are also called shares of stock or equities. When you purchase a stock, you are buying a partial ownership interest in the company. This entitles you to a particular benefit. You have also got to understand that knowing stocks and how they work are an essential part of investing. Stocks also play a key role in building a well-balanced investment portfolio.
What are the Benefits of Investing in Stocks?
When you buy a stock of a company you get a few privileges, and they include:
A Voting Right: You will get the right to vote in the company’s annual meetings.
Dividends: You will also get a share of the company’s profits.
Capital Appreciation: When the company’s stock price goes up, you get the increased value.
Now, we have got this clear. Let’s get to the next word.
What are Shares?
A share does also represent a portion of the company’s stock. Since you already know what a stock is, these stocks are divided into shares and every share of a stock is equal to a part of ownership in the company.
For instance, let’s just say a company has 1 lakh shares and a person holds 100 shares of X. This means that the person owns a stock that amounts to 0.1% of the company’s total stocks.
There is one thing common in the two factors: The stake.
What is Stake?
A stake is used when we have to describe the amount of stock an investor owns. This definitely means the correct way of using the word. When you own stock in the company, your stake shows the percent of its stock that you own.
A stake does not have to mean stock ownership. It could mean a more generic term that is used to say partial ownership in a company. For instance, if you and a business partner choose to buy an investment property together. You can say that you own a stake in the property, even when there is no formal structure. Adding to that – bondholders are known to be stakeholders of a company because they stand to benefit when the company does well.
When you invest smaller in non-public companies, you will receive a stake in the business in exchange for your investment. Let’s just say you are looking to raise 50,000 in exchange for a 20% stake in that business. Investing the 50,000 could entitle you to 20% of the profits going forward.
Stockholder, Shareholders, and Stakeholders
The ones that own stocks in a public company are stockholders, stakeholders, and shareholders. All of the three are right. From these terms, stockholders and shareholders are interchangeable in all situations.
Both of the terms – that is stock and share. They mean investments, and you own shares of stock in a company. But, both of them are stakeholders, but just more generic.