Stocks & Shares As A Form Of Business Ownership

For a people with cash, there are many investment vehicles to choose from to achieve their financial goals. These are: stocks, bills, bonds, mutual funds, hedge funds, futures, options, swaps, forwards, warrants, CFDs, spread-betting etc. In this post I’ll start with most common of all above – Stocks.

Stock (Shares) - Forms Of Business Ownership

A stock or a share represents abstract part of the business ownership. There are four main types of business entities. These are Sole proprietorship, Partnership, Limited liability companies and Corporations. Sole proprietorship and partnership are two simple form to start a business, but the problem with them is that the owner(s) is liable with his all net worth. Somewhere in between are LLC. Or limited liability companies, where the ownership is liable up to the stake of his capital in the entity.

Last one, a Corporation, is a is a legal entity where whole business is „divided“ in shares or slices. That slice or share represents a part of the company, and can be traded between people. Because corporations have limited liability, which is limited to the stake of the ownership or to the number of shares of stock that you have in possession, it’s clear that the individual investor got a chance to invest in the business with lower risk, then if himself started a sole proprietorship or partnership.

The company can be publicly traded, if it choose to be listed on a stock exchange. To be listed, it has to meet certain requirements of a stock exchange and bank that acts as a underwriter of the emission, and finally trough an IPO or Initial Public Offering, stock get listed on the secondary market ie. a stock exchange.