If you own stock, you own a share of ownership in a company. You are also entitled to some share of the company’s assets and earnings. The more stock you own, the more assets and earnings you are entitled to.
There are two kinds of stock: common and preferred.
There is no difference. The terms stock, equity, and shares referring to ownership in a company all mean the same thing.
Stock confers many rights in the holder. Being a stockholder, or shareholder, you have the right to your share of the company’s earnings and you have voting rights which can be used to vote on some corporate decisions, such as election of the board of directors.
It may sound like you have a lot of power, but it all depends on how many shares you actually own. Generally, unless you are an institutional investor, you don’t really have much of a say in the day-to-day operation of the company. The extent of your control is usually limited to election and removal of directors.
One of the great characteristics of stock is its limited liability. If the company experiences financial difficulties and creditors become involved, the most you can lose is your investment in the stock. While the personal assets of the major investors and members of the company are fair game to creditors, your personal assets are untouchable.
Although bonds can be a safer investment, especially for the long term investor, stock can yield greater returns. However, with greater return comes greater risk. Stocks are historically better investments because of their greater returns, but the greater return is not a guarantee.
Consultation with an attorney for most investment decisions is probably unnecessary. However, if there is a dispute with your broker, such as when you lose a significant part of your investment based on the broker’s bad advice, you should speak to a lawyer immediately. An experienced investments lawyer will help to explain your rights as well as preserve any possible remedies you may have.