Benefits of Owning Shares in a Company

Businesses issue shares to raise capital, and individuals can acquire shares to benefit from returns in the form of dividends and capital appreciation. Shareholders can hold common or preferred stock, distinct from bondholders and stakeholders.

Shareholders: Ownership and Examples

Shares symbolize a partial ownership stake in a company. Shareholders possess one or more shares of stock, making them partial owners of the business. A corporation may launch an initial public offering (IPO) to transition from private to public status, raise funds for expansion, introduce new products, clear debts, and allow the public to purchase shares through brokerage firms. As a shareholder, one has a stake in the business's earnings, assets, and decision-making rights, as exemplified by Chevron Corporation's eco-friendly vote held by its shareholders in May 2021.

Types of Shareholders

Common stockholders, known as "residual claimants," come last in line for income behind bondholders, creditors, and preferred shareholders. They reap profits only if the business generates ample earnings. Preferred stockholders receive fixed dividends without additional claims to earnings and lack voting privileges. Shareholders differ from bondholders who are lenders with fixed-interest payments and stakeholders impacted by the business but not necessarily capital providers.

Advantages and Disadvantages of Shareholding

Pros of shareholding include potential capital growth, dividend possibilities, and limited liabilities. However, risks like declining stock prices and uncertain dividend payments exist. Shareholders enjoy profit from rising stock prices and dividends but face financial losses if stock values drop or dividends are withheld.

Becoming a Shareholder

To become a shareholder, you acquire shares through a brokerage firm's platform or office after conducting thorough research and risk assessment. Consider your investment goals and align them with the company's performance before purchasing shares. Shareholding allows individuals to profit from company success but exposes them to market risks and uncertainties.