The stock (also share capital ) of a company is based on the owner's equity share. One part of the share represents the fractional ownership of the company in proportion to the total number of shares. In liquidation, the stock is a residual asset of the company that will belong to the shareholder after out of all senior claims such as secure and unsecured debt. Shareholder equity can not be withdrawn from the company in a manner that is intended to harm the creditors of the company.
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Shares together form a stock. The company's shares are partitioned into shares, the total of which is stated at the time of business establishment. Additional shares may then be authorized by existing shareholders and issued by the company. In some jurisdictions, each share has a certain nominal value, which is the nominal value of accounting used to represent the equity on the balance sheet of the company. However, in other jurisdictions, shares may be issued without corresponding nominal value.
Shares represent a small fraction of ownership in business. A business can declare different types (or classes) of shares, each having different ownership rules, privileges, or value sharing. Share ownership can be documented by issuing stock certificates. Stock certificates are legal documents that determine the number of shares owned by shareholders, and other specifics of the stock, such as nominal value, if any, or class of shares.
In the United Kingdom, the Republic of Ireland, South Africa, and Australia, shares may also refer to completely different financial instruments such as government bonds or, more rarely, for any type of securities.
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Type
Shares usually take the form of shares of either common stock or preferred stock. As a unit of ownership, common stock usually brings the voting rights that can be made in the company's decision. Preferred stocks differ from ordinary shares because they usually do not carry voting rights but are legally entitled to receive a certain dividend payment rate before dividends can be issued to other shareholders. Convertible preferred stock is preferred stock which includes option for holder to convert preferred shares into fixed amount of common stock, usually at any time after specified date. These shares of stock are called "preferred conversion stock" (or "conversion preference stock" in the UK).
New equity issues may have certain inherent legal clauses that distinguish them from previous issues from publishers. Some shares of common stock may be issued without distinctive voting rights, for example, or some shares may have special privileges specific to them and are issued only to certain parties. Often, new issues that have not been registered with securities regulatory agencies may be limited from resale for a certain period of time.
Preferred stocks may be hybrids with the quality of fixed refund bonds and common stock voting rights. They also have preference in the payment of dividends on common shares and also have been given preference at the time of liquidation of common stock. They have other accumulated features in dividends. In addition, preferred stocks are usually supplemented by mail appointment at the end of security; for example, Berkshire-Hathaway Stock Class "B" is sold under ticker shares BRK.B, while Class "A" shares of ORION DHC, Inc will be sold under ticker OODHA until the company drops "A" creates ticker OODH because "General" only limited to the title. This additional letter does not mean that there is an exclusive right to shareholders but it lets investors know that the shares are being considered for it; however, these rights or privileges may change based on the decisions made by the underlying company.
Share Rules 144
"Rule 144 Stock" is an American term given for stock shares subject to SEC Rule 144: Unrestricted Sale and Securities Control. Under Rule 144, restricted and controlled securities are obtained in unregistered form. Investors either purchase or take ownership of these securities through personal sales (or other means such as through ESOP or in exchange for seed money) from issuing companies (as in the case with Limited Securities) or from affiliates of the issuer (as in the case with Control Effects). Investors who want to sell these securities are subject to different rules from those who sell common or traditional preferred shares. These persons will only be allowed to liquidate their securities after meeting the specific provisions set by SEC Rule 144. Rule 144 allows resale of limited securities if different conditions are met.
Derivatives shares
A stock derivative is any financial instrument that has value that depends on the underlying share price. Futures and options are the main types of derivatives in stocks. The underlying security may be the index of shares or shares of individual companies, such as single-term stocks.
Stock futures are contracts in which the long buyer, ie, takes the obligation to buy on the due date of the contract, and the seller is short, that is, taking the obligation to sell. Stock futures indexes are generally delivered with cash payments.
Stock options are option classes. Specifically, the call option is the right ( not obligation) to buy future shares at a fixed price and the put option is the right ( not obligation) to sell the stock in the future by fixed price. Thus, the value of the stock option changes as a reaction to the underlying stock which is a derivative. The most popular method for valuing stock options is the Black Scholes model. Regardless of the call options provided to employees, most stock options are transferable.
History
During the Roman Republic, the state was contracted (leased) from many of its services to private companies. This government contractor is called publicani , or societas publicanorum as an individual company. These companies are similar to a modern company, or a joint-stock company more specific, in some aspects. They issue shares called partes (for large cooperatives) and particulae which are small shares that act like over-the-counter stocks today. Polybius mentioned that "almost every citizen" participates in government leasing. There is also evidence that stock prices fluctuate. The Roman orator Cicero speaks of partes illo tempore carissimae , which means "stock that has a very high price at that time." This implies price fluctuations and stock market behavior in Rome.
Around 1250 in France at Toulouse, 96 shares of SociÃÆ' © tÃÆ'  © des Moulins du Bazacle, or Bazacle Milling Company are traded with values ​​that depend on the profitability of factories owned by the public. Early in 1288, Swedish mining and forestry company Stora had documented a share transfer, in which the Bishop of VÃÆ'¤sterÃÆ'  ¥ s earned 12.5% ​​interest in the mine (or more specifically, the mountain where copper resources were available , Great Copper Mountain to be exchanged for plantation.
The earliest recognized joint-stock company in modern times is the later British Indian Company (UK), one of the most famous joint-stock companies. It was awarded the British Royal Charter by Elizabeth I on December 31, 1600, with a view to supporting trade privileges in India. The Royal Charter effectively provided the newly created Honorable East Honorable Corporation (HEIC), a 15-year monopoly on all trade in the East Indies. The company is transformed from commercial trading into a company that virtually controls India for acquiring additional government and military functions, until its dissolution.
Shortly thereafter, in 1602, the Dutch East India Company issued the first stock made tradable on the Amsterdam Stock Exchange, an invention that enhanced the ability of joint-stock companies to attract capital from investors because they could now easily dispose of their shares.. The Dutch East India Company became the first multinational company and the first megacorporation. Between 1602 and 1796 it traded 2.5 million tons of cargo with Asia on 4,785 ships and sent one million Europeans to work in Asia, surpassing all other rivals.
The joint ownership innovation made much of Europe's economic growth possible after the Middle Ages. Capital collection techniques to finance the construction of ships, for example, make the Netherlands as a maritime superpower. Prior to the adoption of joint-stock companies, expensive businesses such as merchant-ship development can only be undertaken by governments or by very wealthy individuals or families.
The economic historians found the Dutch stock market in the 17th century very interesting: there was clear documentation about the use of stock futures, stock options, short selling, the use of credit to buy stocks, speculative bubbles that fell in 1695, and changes in folded and restored modes in time with the market (in this case the headdress is not the edge line). Edward Stringham also noted that the use of practices such as short selling continued to occur during this time even though the government passed a law against it. This is unusual because it shows each side fulfills a contract that is not legally enforceable and in which the parties involved may incur a loss. Stringham argues that this implies that contracts can be made and enforced without state sanctions or, in this regard, regardless of contradictory laws.
A shareholder (or shareholder ) is an individual or company (including a company) that legally owns one or more shares in a joint-stock company. Both private and publicly traded companies have shareholders.
Shareholders are granted special rights depending on the class of stock, including the right to vote on matters such as the selection of the board of directors, the right to share in the distribution of corporate earnings, the right to purchase new shares issued by the company, and the rights to the company's assets during the liquidation of the company. However, the rights of shareholders of the company's assets are under the rights of the company's creditors.
Shareholders are a type of stakeholder, which may include anyone with a direct or indirect equity interest in a business entity or a person with even non-financial interests in a nonprofit organization. So it may be common to call volunteer contributors to stakeholders of the association, even if they are not shareholders.
Although the directors and officials of a company are bound by a fiduciary duty to act in the best interests of the shareholders, the shareholders themselves are usually not liable to one another.
However, in some unusual cases, some courts have been willing to imply such duties among shareholders. For example, in California, USA, the majority shareholder of a closely held company has an obligation not to damage the value of shares owned by minority shareholders.
The largest shareholders (in terms of the percentage of companies owned) are often mutual funds, and in particular, passively traded funds that are managed passively.
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Owners of private companies may want additional capital to invest in new projects within the company. They may also just want to reduce their holdings, freeing up capital for their own personal use. They can achieve this goal by selling shares in the company to the general public, through a sale on the stock exchange. This process is called an initial public offering, or IPO.
By selling shares, they can sell part or all of the company to many parts owners. The purchase of a share entitles the shareholder to actually share in the ownership of the company, a fraction of the decision-making power, and potentially a fraction of the profits, which the firm may incur as dividends. Owners can also inherit debt and even litigation.
In the general case of a publicly traded company, where there may be thousands of shareholders, it is impractical to get them all to make the daily decisions necessary to run the company. Thus, shareholders will use their shares as votes in the selection of the company's board of directors.
In a typical case, each part is one vote. Corporations can, however, issue various classes of stock, which may have different voting rights. Having a majority share allows other shareholders to opt-out - effective control lies in the majority shareholder (or shareholder acting jointly). In this way the original owner of the company often still has control of the company.
Although 50% ownership of shares does generate 50% ownership of the company, it does not give the holder the right to use building, equipment, materials, or other company property. This is because the company is considered a legal person, so it has all its own assets. This is important in areas such as insurance, which must be on behalf of the company and not the main shareholder.
In most countries, the board of directors and corporate managers have a fiduciary responsibility to run the company for the benefit of its shareholders. Nonetheless, as Martin Whitman writes:
- ... it can be safely stated that there is no publicly traded company where management works exclusively in the best interests of OPMI shareholders [Outside Passive Minority Investors]. Instead, there are "community interests" and "conflict of interest" between shareholders (principals) and management (agents). This conflict is called a principal-agent problem. It would be naive to think that any management would sacrifice management compensation, and entrenchment management, simply because some of these management privileges can be considered to cause a conflict of interest with OPMI.
Although the board of directors runs the company, shareholders have some impact on company policy, as shareholders choose the board of directors. Every shareholder usually has the same percentage of votes as the percentage of shares owned. So as long as the shareholders agree that the management (agent) performs poorly they can choose a new board of directors who can then recruit a new management team. But in practice, the election of a truly contested council is rare. Prospective councils are usually nominated by an insider or by the board of directors themselves, and a large number of shares are held or selected by an insider.
Owning shares does not mean responsibility for obligations. If a company goes bankrupt and must default on the loan, the shareholders are not responsible in any way. However, all the money earned by converting the asset into cash will be used to repay the loan and other debt first, so that shareholders can not receive the money unless and until the creditor has been paid (often the shareholders ends up with none).
Financing tools
Financing the company through the sale of shares in a company is known as equity financing. Alternatively, debt financing (eg bond issuance) can be done to avoid handing over shares of company ownership. Unofficial financing known as trade finance usually provides a major part of the company's working capital (daily operational needs).
Trading
In general, company shares may be transferred from shareholders to other parties by sale or other mechanism, unless prohibited. Most jurisdictions have established laws and regulations governing such transfers, especially if the issuer is a publicly traded entity.
The desire of shareholders to trade their shares has led to the establishment of a stock exchange, an organization that provides a market for stock trading and other derivatives and financial products. Today, stock traders are usually represented by stockbrokers who buy and sell shares from various companies in the exchange. A company may register its shares on the exchange by meeting and maintaining certain exchange listing requirements. In the United States, through an inter-market trading system, stocks listed on a single exchange can often also be traded on other participating exchanges, including electronic communications networks (ECN), such as Archipelago or Instinet.
Many large non-US companies choose to register in US exchanges as well as exchange in their home countries to expand their investor base. These companies must maintain a block of shares in banks in the US, usually a certain percentage of their capital. On this basis, the parent bank determines the stock of American savings and the issue of American deposit receipt (ADR) for each share earned by the trader. Likewise, many large US companies register their shares in overseas markets to raise capital abroad.
Small companies that are not eligible and can not meet the requirements of listing of major exchanges can be traded over-the-counter (OTC) with off-exchange mechanisms in which trading occurs directly between parties. The main OTC markets in the United States are OTC Bulletin Board (OTCBB) and OTC Markets Group (previously known as Pink OTC Markets Inc.) whereby individual retail investors are also represented by brokerage firms and quote service requirements for minimum listed companies. Company shares in the bankruptcy proceedings are usually registered by this quotation service after the shares are removed from exchange.
Purchase
There are various methods of purchasing and financing of shares, the most common is through stock brokers. Brokerage firms, whether they are full-service brokers or discounts, arrange transfer of shares from seller to buyer. Most trades are done through brokers listed on the stock exchange.
There are many different brokerage firms to choose from, such as full-service brokers or discount brokers. Full service brokers typically charge more per trade, but offer more personal investment or service advice; discount brokers offer little or no investment advice but much less cost to trade. Another type of broker is a bank or credit union that may have an agreement made with a full-service broker or a discount.
There are other ways to buy shares other than through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations department. However, the initial stock of shares in the company must be obtained through a regular stock broker. Another way to buy shares in a company is through Direct Jump Direct which is usually sold by the company itself. A direct public offering is an initial public offering in which shares are purchased directly from the company, usually without the help of a broker.
When it comes to finance the purchase of shares there are two ways: buy shares with money that is currently in buyer's ownership, or by buying stocks by margin. Buying shares on margin means buying stocks with money borrowed against the value of shares in the same account. These shares, or guarantees, guarantee that the buyer may repay the loan; if not, the stockbroker has the right to sell the stock (collateral) to repay the loan money. He can sell if the stock price falls below the margin requirement, at least 50% of the value of the shares in the account. Buying on margin works in the same way as borrowing money to buy a car or a house, using a car or house as collateral. In addition, borrowing is not free; brokers usually charge 8-10% interest.
Sell
Stock sales are procedurally the same as buying shares. Generally, investors want to buy low and sell high, if not in that order (short selling); although a number of reasons may cause investors to sell at a loss, for example, to avoid further losses.
As with any stock purchase, there is a transaction fee for the brokerage business in arranging the transfer of shares from the seller to the buyer. This cost can be high or low depending on the type of brokerage, full service or discount, which handles transactions.
After the transaction is done, the seller is then entitled to all the money. An important part of sales is tracking revenue. Importantly, in the sale of shares, in the jurisdiction that owns them, the capital gains tax shall be paid on the additional yield, if any, exceeding the cost basis.
Stock price fluctuations
The price of a stock fluctuates fundamentally because of supply and demand theory. Like all commodities in the market, the price of a stock is sensitive to demand. However, there are many factors that affect the demand for a particular stock. The areas of fundamental analysis and technical analysis seek to understand market conditions that lead to price changes, or even predict future price levels. A new study shows that customer satisfaction, as measured by the American Customer Satisfaction Index (ACSI), is significantly correlated with the market value of a stock. Stock prices can be influenced by analysts' business forecasts for companies and views for the general corporate market segment. Stocks can also be highly fluctuating due to pump and dump scams. stock prices are very valuable.
At a given moment, the price of equity is the result of supply and demand. Supply, commonly referred to as float , is the number of shares offered for sale at any time. Demand is the number of shares the investor wants to buy at the same time. Stock prices move to reach and maintain equilibrium. The product of this instant price and float at one time is the market capitalization of the entity offering equity at that time.
When a potential buyer exceeds the seller, the price goes up. Finally, sellers who are interested in high selling prices enter the market and/or the buyer away, reaching a balance between buyers and sellers. When the seller exceeds the number of buyers, the price falls. Eventually the buyer enters and/or the seller leaves, once again reaching a balance.
Thus, the value of a company's stock at a given moment is determined by all investors who choose with their money. If more investors want a stock and are willing to pay more, the price will go up. If more investors sell shares and there are not enough buyers, prices will go down.
- Note: "For Nasdaq-listed shares, the price quotation includes information on bid and ask prices for stocks."
That does not explain how people decide on the maximum price at which they are willing to buy or the minimum on which they are willing to sell. In professional investment circles, efficient market hypotheses (EMH) continue to be popular, although the theory is widely discredited among academics and professionals. Briefly, EMH says that the overall investment (weighed by the standard deviation) is rational; that the price of a share at a given moment is a rational evaluation of known information that may contain future value of the company; and that equity share prices are priced efficiently , which means that they accurately represent the expected value of the stock, as well as can be known at any given moment. In other words, the price is the result of discounting the expected future cash flows.
The EMH model, if true, has at least two interesting consequences. Firstly, since financial risk is assumed to require at least a small premium on the expected value, return on equity may be expected to be slightly greater than that available from non-equity investments: otherwise the same rational calculation will cause equity investors to shift to non- this safer equity that can be expected to provide equal or better returns with lower risk. Secondly, since the stock price at any given moment is an "efficient" reflection of the expected value, then - relative to the expected return curve - the price will tend to follow a random path, determined by the emergence of information (randomly) over time. Therefore, professional equity investors immerse themselves in the flow of fundamental information, seeking profit from their competitors (especially other professional investors) by smarter interpreting the flow of information that appears (news).
The EMH model does not seem to provide a full picture of the equity pricing process. For example, stock markets are more unstable than those implied by EMH. In recent years, it has been accepted that the stock market is not fully efficient, perhaps especially in emerging markets or other markets that are not dominated by knowledgeable professional investors.
Another stock pricing theory comes from the field of Behavioral Finance. According to the Financial Behavior, humans often make irrational decisions - in particular, related to the purchase and sale of securities - based on fear and misperception of results. The irrational trading of securities can often create the price of securities that vary from a rational pricing valuation. For example, during tech bubbles in the late 1990s (followed by dot-com bust in 2000-2002), technology companies often bid beyond the rational fundamental value of what is commonly known as the "bigger stupid theory". The "bigger stupid theory" states that, since the primary method for realizing returns in equity is from sales to other investors, one should choose securities that they believe others will respect at a higher level at some point in the future, without pay attention to the basis of another party's willingness to pay a higher price. Thus, even a rational investor can rely on the irrationality of others.
Arbitrage trading
When firms raise capital by offering shares on more than one exchange, there is the potential for differences in stock valuations on different exchanges. Investors who are interested in access to information about such differences can invest in the hope of their eventual convergence, known as arbitrage trading. Electronic commerce has resulted in broad price transparency (efficient market hypothesis) and this difference, if any, is short-lived and quickly balanced.
See also
References
External links
- Stock exchange in Curlie (based on DMOZ)
- Stocks invest in Curlie (based on DMOZ)
Source of the article : Wikipedia
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