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Stocks / Shares
In financial terminology, stock is the capital raised by a corporation (in Germany Aktiengesellschaft), through the issuance and distribution of shares. A shareholder is any person or organization which holds shares, or fractions of shares, of a corporation's stock. The aggregate value of a corporation's issued shares is its market capitalization.
History
The first company that issued shares was the Dutch East India Company, in the early 17th century (1602).
The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before the widespread adoption of the joint-stock corporation, an expensive venture such as building a merchant ship could only be undertaken by governments or by very wealthy individuals or families.
Ownership
The owners of a company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use.
By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends.
In the common case of a publicly traded corporation, where there may be thousands of shareholders, it is impractical to have all of them making the daily decisions required to run a company. Thus, the shareholders will use their shares as votes in the election of members of the board of directors of the company.
In a typical case, each share constitutes one vote (except in a co-operative society where every member gets one vote regardless of the number of shares he holds). Corporations may, however, issue different classes of shares, which may have different voting rights. Owning the majority of the shares allows other shareholders to be out-voted - effective control rests with the majority shareholder (or shareholders acting in concert). In this way the original owners of the company often still have control of the company.
Shareholder rights
Although owning 51% of shares does mean that you own 51% of the company, it does not give you the right to use a company's building, equipment, materials, or other property. This is because the company is considered a legal person, thus it owns all its assets itself. This is important in areas such as insurance, which must be in the name of the company and not the main shareholder.
In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. But the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Each shareholder typically has a percentage of votes equal to the percentage of shares he or she owns.
So as long as the shareholders agree that the management (agent) are performing poorly they can elect a new board of directors which can then hire a new management team. In practice, however, genuinely contested board elections are rare. Board candidates are usually nominated by insiders or by the board of the directors themselves, and a considerable amount of stock is held and voted by insiders.
Owning shares does not mean responsibility for liabilities. If a company goes broke and has to default on loans, the shareholders are not liable in any way. However, all money obtained by converting assets into cash will be used to repay loans and other debts first, so that shareholders cannot receive any money unless and until creditors have been paid (most often the shareholders end up with nothing).
Means of financing
Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing (for example issuing Bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).
Trade financing is provided by vendors and suppliers who sell their products to the company at short-term, unsecured credit terms, usually 30 days. Equity and debt financing are usually used for longer-term investment projects such as investments in a new factory or a new foreign market. Customer provided financing exists when a customer pays for services before they are delivered, e.g. subscriptions and insurance.
Trading
A stock exchange is an organization that provides a marketplace (either physical or virtual) for trading shares, where investors (represented by stock brokers) may buy and sell shares in a wide range of companies. A given company will usually list its shares in only one exchange by meeting and maintaining the listing requirements of that particular stock exchange. Although it makes sense for some companies to raise capital by offering stock on more than one exchange, in today's era of electronic trading, there is little opportunity for private investors to make profit on pricing discrepancies between one stock exchange and another. As such, arbitrage opportunities disappear almost immediately due to the efficient nature of the market.
Stock Price Fluctuation
The price of a stock fluctuates fundamentally due to the law of Supply and demand. Like all commodities in the Market, the price of a stock is directly proportional to the demand. However, there are many factors on basis of which the demand for a particular stock may increase or decrease. These factors are studied using methods of Fundamental analysis and Technical analysis to predict the changes in the stock price.
from http://en.wikipedia.org
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