It is not right to say that if you are a stock holder you own the company. Instead the right thing to say is that you own shares issued by that company. In that sense, the common definition of stock that we always hear: “As you acquire more stock, your ownership stake in the company becomes greater”, is wrong.
In legal terms, corporations are legal persons. Corporations can own its own assets, debts, and be sued. The corporate computers, chairs, desks, etc. belong to the corporation and not to the shareholders.
Many business people choose to build corporations than partnerships and any other form of business organizations because of this distinction that legally separates the corporate property from the property of shareholders. This distinction limits the liability of both the corporation and the shareholders. If the corporation have caused damages and was sued, it only involves the corporation and not its shareholders. The shareholder’s own properties are not risked of being affected by any court decisions.
Even if you have 44% share, it doesn’t mean you can do anything to the corporate properties as you please. Instead, this share gives you the right to vote in shareholder meetings, receive dividends, and it gives you the right to sell your shares to somebody else.
Even if you cannot do anything as you please in the company, the bigger portion of shares that you own lets you have a bigger voice. Decision in corporations are usually done by voting and the bigger you shares the more influential your vote is.
However, these are not important to common folk as you have to have a huge portion of the corporation to have this power. What is important is that you are entitled to a portion of company’s profits or dividends. The more share you own, the larger the portion of the profits you get. And if the company doesn’t release dividends, like what most corporations do, they invest it back to the company, which in turn increases the value of the stock over time.
Stocks is one of the financial instruments that is nice to have because it is easy to acquire, manage and gives a high return.
Learn more of this on our FREE Financial Literacy seminar!