Stocks from the Beginning

In order to start a business, creator needs to invest a capital stock aside from the assets and property, to use for the business operation. Companies need creditors thus; capital stock serves as a security for the creditors and cannot be withdrawn for company’s expenses.

In a business, stocks are divided into shares, where each share holds a certain declared value. Companies will then sell these shares to entities willing to invest with them to collect more money for the business. In return, buyer of stocks will own part of the company’s equity and becomes a stockholder. Stockholders will enjoy the benefit of being one of the company’s partners together with other stockholders. Company’s stock though may either in the form of common or preferred stock. In common stocks, holders may have the right to vote on matters of company policy while preferred stocks carry no voting rights. The advantage of buying preferred stocks lies in the fact that holders of this stocks are prioritize when it comes to payment.

Stocks certificate is issued to individuals who own stocks in the company, which serves as a legal document. Written in the stock certificate is the amount of shares own by the holder, the value, as well as the class of the shares. Preferred stocks though are convertible to common stocks. Status of stockholders in the company depends on the amount of shares they owned. The one who owns the highest shares holds a significant position in the company where his decisions are most valued regarding serious issues that may arise during operation. Decision-making are made in the presence of major stockholders of the company. Major stockholders may also have the right to oust the current management when mismanagement arises as their investment lies in the proper management of the company and may vote for someone they deemed qualified to take charge.