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Share or stock most commonly refers to a share of ownership in a company. The owners and financial backers of a company may
decide to sell the company. However, this leads to the loss of control over the company.
Alternatively, 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 a share in the ownership of the company, including the right to a fraction of the
assets of the company, a fraction of the decision-making power, and potentially a
fraction of the profits, which the company may issue as dividends. However, the
original owners of the company often still have control of the company, and can use the money paid for the shares to grow the
company.
In the common case, where there are thousands of shareholders, it is impractical to have all of them making the daily
decisions required in the running of a company. Thus, the shareholders will use their shares as votes in the election of members
of the board of directors of the company. However, the choices
are usually nominated by insiders or the board of the directors themselves, which over time has led to most of the top executives
being on each others boards (see http://www.theyrule.net for an example). Each share constitutes one vote (except in a co-operative society where every member gets one vote regardless of the number of
shares they hold). Thus, if one shareholder owns more than half the shares, they can out-vote everyone else, and thus have
control of the company.
Shares are usually traded on a stock exchange, where people and
organisations may buy and sell shares in a wide range of companies. A given company will usually only trade its shares in one
market, and it is said to be quoted, or listed, on that stock exchange. However, some large, multinational corporations are
listed on more than one exchange. They are referred to as inter-listed shares.
There are several types of shares, including common stock, preferred stock, treasury stock, and dual class shares. Preferred shares have priority over common shares in the distribution
of dividends and assets. A dual class equity structure has several classes of shares (for example Class A, class B, and class C)
each with its own advantages and disadvantages. Treasury stock are shares that have been bought back from the public.
A stock option is the right (or obligation) to buy or sell stock in the
future at a fixed price. Stock options are often part of the package of executive compensation offered to key executives. Some companies extend stock options to all (or
nearly all) of their employees. This was especially true during the dot-com boom of
the mid- to late- 1990s, in which the major compensation of many employees was in the
increase in value of the stock options they held, rather than their wages or salary. This is still the major method of
compensation for CEO's.
The theory behind granting stock options to executives and employees of a corporation is that, since their financial fortunes
are tied to the stock price of the company, they will be motivated to increase the value of the stock over time.
The first company that issued shares is considered to be the Dutch East India Company, in 1602.
See also: Equity investment, American Depositary Receipt, Stock valuation
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