People often use the terms “stock,” “share,” and “stake” interchangeably when they talk about investing, but it’s important for all stock investors to understand that each term means something different.

In American English, these two words are often used interchangeably to talk about financial equities, specifically securities that show ownership in a public company. Today, the distinction between the two words has to do more with how they are put together and how they are used.

In this article, we’ll go over the distinct characteristics of shares and stocks that differ them from one another. 

Let’s get started! 

By Definition

Stocks are equity investments that represent a company’s legal ownership. When you acquire shares in a company, you become a part-owner of it. Those small shares are commonly known as the company’s stock, and by investing in them, you’re hoping that the business will grow and perform well over time.

What Are Shares?

Shares, on the other hand, are units of equity ownership in a business. For some companies, shares are a financial asset that allows dividends to be paid out equally on any leftover profits if any are declared. Shareholders of a stock that doesn’t give dividends don’t get any of the profits. Instead, they look forward to seeing the stock price rise as the company makes more money.

By Functionality Stocks

Companies issue stock to encourage potential investors in order to raise funds for expansion, new product launches, equipment purchases, and other purposes. When you buy stock, you are technically purchasing an ownership interest in a company in the hopes of making a profit.

Stocks can be classified into four types:

Common stock: Most of the stock issued is common stock, which most people invest in. Stockholders of common stock have voting rights, typically one vote per share of stock.

Preferred stock: In the event of a possible liquidation, preferred stock is reimbursed before common stock (but after bonds). Preferred stock is a cross between stocks and bonds.

Class A: Class A stock is a type of common stock with more voting rights than Class B stock. Aside from that, Class A and Class B stock are identical.

Class B: Class B stock is a common stock with fewer voting rights than Class A stock.

Stocks are traded on stock exchange platforms. Buyers and sellers participate in an auction by placing bids and offers to buy and sell stock. 

Example: A Stock Issued By Apple Inc.

Stocks are identified by the name of the company as well as the ticker symbol, which is frequently preceded by the name of the exchange where the stock trades. Consider Apple Inc. (NASDAQ: AAPL). Owning Apple Inc common stock entitles you to several important benefits:

• The right to receive a portion of Apple’s profits as dividends.
• The right to sell your stock for a profit if its value rises.
• The ability to vote in meetings with other Apple stockholders.

Shares

Because each share has a value that goes up and down on the stock exchange on a daily basis, investors can easily determine the value of their investment by dividing stock into shares.

In terms of quantity, it is technically possible to purchase fewer than one share. Many brokers also allow you to buy and sell fractional shares, which enable you to purchase a portion — or “fraction” — of a single share. This allows you to own stock that you might not have been able to afford otherwise.

Investors can also calculate their stake in the company based on the percentage of all outstanding shares they own. For example, if Apple issued 100,000 shares of stock and you own 10,000 of them, you own 10% of the total shares in circulation (but not 10% of Apple Inc).

Shares can also be categorized based on their functionality: 

Cumulative preferred shares: These are preferred shares that require the payment of missed dividends before other types of shares.

Deferred shares: In the event of a bankruptcy, deferred shares have no rights to assets until preferred and common stockholders have been paid.

Non-voting shares: As the name implies, these shares have no voting rights and are normally issued to the company’s employees and family members of primary shareholders.

Redeemable shares: These are shares that the company can repurchase on or after a certain date or event. This is essentially a call option built into the system.

Example: A Share Issued By KO

Based on what we’ve discussed, it’s safe to say that a share represents a fraction of the company’s total stock. All of this makes sense when it comes to the return on investment.

• Assume you buy 10,000 KO shares at $50 each. The total amount you would invest would be $500,000. If the price of a single share of KO increased to $60 and you decided to sell all 10,000 shares, you would receive $600,000, or a profit of $100,000.
• Assume KO declared a $1 dividend per share (EPS). Your $10,000 dividend payment would be made on your 10,000 shares of KO.

Shareholder VS Stockholder

Shareholders are those who invest in a company by purchasing shares of stock from the company’s stockholders. Since stock is denominated in shares, “stock” and “shares” are synonymous in this context. To put it another way, a stockholder is a shareholder in the company.

A shareholder is a preferred term to use when referring to an individual who has stock in a corporation because of this direct connection between the two terms. Those who hold raw materials or finished goods in addition to shares could be considered stockholders.