Difference between Stock and Share: How They Differ?

Difference between Stock and Share: How They Differ?

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Jaya
Jaya Sharma
Senior Executive Content
Updated on Dec 5, 2023 22:46 IST

Stock is a broad term that represents ownership in a company, and it can be divided into a number of shares. It’s a term that doesn’t specify a particular amount. On the other hand, a share is a unit of ownership in a company. It represents a defined portion of the stock, indicating a shareholder’s degree of ownership in the firm. Stock refers to the collective ownership stake in a company, while share refers to a specific piece of that collective ownership.

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In this article on the difference between stock and share, we will be discussing the distinguishing factors between these two.

Table of Contents

Difference between Stock and Share

The following table explains the difference between stock and share: 

Parameter Stock Share
Definition A stock is a general term used to describe the ownership certificates of any company. A share refers to the ownership certificate of a particular company.
Ownership Owning stock means you have ownership in a range of companies. Owning shares means you have ownership in a specific company.
Types Preferred stocks and common stocks. Common stockholders have voting rights in the company but are last in line to receive any remaining assets during the event of a liquidation. Preferred stockholders don’t usually have voting rights but receive dividends before common stockholders and have a higher claim on assets if the company is liquidated. Shares are typically broken down into common shares and preferred shares, similar to stocks. However, the term “shares” also extends to other investment products like mutual funds, where “share” indicates a portion of ownership in the fund.
Dividends Dividends are not guaranteed for stockholders. Preferred stockholders are usually entitled to receive dividends before common stockholders. Dividends are typically paid out to shareholders based on the number of shares they own. The company’s board of directors can take a decision whether or not to pay dividends.
Voting Rights Common stockholders typically have voting rights in the company. Preferred stockholders do not gain voting rights. Shareholders usually have voting rights, with the number of votes directly proportional to the number of shares owned.
Risk Stocks come with a level of risk, as their value can fluctuate based on market conditions. Common stockholders face the most risk as they are last in line to receive any remaining assets in the event of a liquidation. Shares also carry risk, as their value can fluctuate. However, the risk is generally associated with the specific company the shares are in, rather than the broader market.

What is a Stock?

Stock refers to equity ownership in a company. If you own stock in a company, you are literally an owner of that company, and you have a claim on the company’s assets and profits. Owning stock also gives you the right to vote for the board of directors and on any proposals that the board puts before stockholders. They are traded on stock exchange. Stocks are types of financial securities that represent a portion of ownership in one or multiple companies. On buying a company’s stock, you become a shareholder of that company.

Types of Stock

Stocks can be classified into several types based on various factors such as ownership rights, company size, and sector. Here are some of the most common types of stocks:

  • Common Stocks: These are the most common type of stocks that investors buy. Owners of common stocks have voting rights in the company, usually at annual general meetings where matters such as election of the board of directors are decided. Common stockholders may receive dividends, which are a portion of the company’s profits distributed to shareholders. However, in the event of a company’s liquidation, common stockholders are the last to receive any remaining assets after all debts and obligations have been paid.
  • Preferred Stocks: Preferred stockholders have a higher claim on the company’s earnings and assets than common stockholders. This means they receive dividends before common stockholders and have a higher claim on assets if the company is liquidated. However, preferred stockholders usually do not have voting rights in the company.
  • Growth Stocks: These are types of stocks of those companies that are expected to grow at an above-average rate compared to other companies in the market. Growth stocks do not pay dividends, as the companies often reinvest their earnings to accelerate growth. Investors buy growth stocks with the hope that the stock price will increase over time.
  • Value Stocks: These are the shares in companies that are considered undervalued compared to their intrinsic value. These companies are often characterized by lower price-to-earnings (P/E) ratios and may pay regular dividends. Value investors seek to profit from the market eventually recognizing the company’s full potential.
  • Dividend Stocks: These company stocks pay dividends regularly. This is an attractive option for income-focused investors. They are often associated with more stable, established companies that generate consistent profits.
  • Blue-Chip Stocks: These stocks are shares in large, well-established, and financially stable companies with a history of reliable performance. These companies often have a national or international presence and are leaders in their industries.
  • Market-Value based Stocks: These classifications are based on a company’s market capitalization (the total market value of a company’s outstanding shares of stock). Small-cap companies have a market capitalization of under $2 billion, mid-cap companies between $2 billion and $10 billion, and large-cap companies over $10 billion. These categories can give investors an idea of the company’s size and growth potential.
  • Sector and Industry Stocks: Stocks can also be categorized by the sector or industry the company operates in, such as technology, healthcare, financial, utility, consumer goods, and more. This classification helps investors in diversifying their portfolio and strategizing based on sector or industry performance.

Benefits of Stocks:

  1. Capital Growth: Stocks have the potential for substantial capital appreciation, meaning the value of your investment can grow significantly over time.
  2. Dividend Income: Some stocks provide income as dividends that can be reinvested or used as a source of regular income.
  3. Ownership Stake: Buying stocks means buying a piece of ownership in a company, which can sometimes come with voting rights in corporate decisions.
  4. Liquidity: Stocks are generally liquid investments, often easily bought and sold during market hours, providing flexibility for investors.
  5. Diversification: Stocks offer a way to diversify an investment portfolio, which can reduce risk.

Risks Associated with Stocks:

  1. Market Risk: Stock market can be volatile, with prices fluctuating widely due to factors like economic changes, political events, or market sentiment.
  2. Company-Specific Risk: Poor company performance or bad news specific to a company can lead to a decline in its stock price.
  3. Liquidity Risk: While generally liquid, some stocks, especially those of smaller companies, may be harder to sell at a desired price.
  4. Interest Rate Risk: Rising interest rates can negatively affect stock prices, as they may lead to higher borrowing costs and decreased spending.
  5. Inflation Risk: Inflation can depleat the purchasing power of future earnings from stocks.
  6. Opportunity Cost: Money invested in stocks could have been invested elsewhere, potentially earning more with different risks.
  7. Dividend Risk: Companies can cut or eliminate dividend payments at any time, which can be a concern for investors relying on this income.

What are Shares?

Shares represent the individual “slices” of ownership in a company. Your influence as a stockholder depends on how many shares you own. A share represents the smallest denomination of any company’s stock. Each unit of stock is known as a share, and every share of stock is equal to a piece of the company’s ownership.

Types of Shares

Companies issue different types of shares. The most common type is, fittingly, common shares. These are the basic shares of a company. When you see a company’s share price quoted on a ticker or in the media, that’s the price for one common share. Shares, like stocks, can be classified into different types based on the rights they confer to shareholders. Here are the most common types of shares:

  • Common Shares: These are the most prevalent type of shares that companies issue. Common shareholders have the right to vote at shareholders’ meetings and they may receive dividends, which are a portion of the company’s profits distributed to shareholders. However, common shareholders are last in line to claim any remaining assets if the company goes bankrupt.
  • Preferred Shares: Preferred shareholders have a higher claim on the company’s earnings and assets than common shareholders. This means they receive dividends before common shareholders and have a higher claim on assets if the company is liquidated. However, preferred shareholders do not have the voting rights in the company.
  • Cumulative Preferred Shares: These shares have a provision that if the company cannot pay dividends in any year, the dividends will accumulate and be paid out in a future year before any dividends are paid to common shareholders.
  • Non-Cumulative Preferred Shares: Unlike cumulative preferred shares, if the dividends are not paid, they do not accumulate and are lost forever.
  • Convertible Preferred Shares: These shares give the holder the right to convert their preferred shares into a certain number of common shares after a predetermined period.
  • Non-Convertible Preferred Shares: These shares cannot be converted into common shares.
  • Redeemable Shares: These shares are issued with the agreement that the company can buy them back at a future date. This can be at a fixed date or at the choice of the company.
  • Non-Redeemable Shares: These shares cannot be reacquired by the issuing company.

Benefits of Shares:

  1. Potential for Growth: Shares can increase in value over time, offering the potential for capital gains.

  2. Income through Dividends: Companies may distribute profits to shareholders in the form of dividends, providing an income stream.

  3. Liquidity: Shares are typically easy to buy and sell on stock exchanges, making them a liquid asset.

  4. Part Ownership in a Company: Shareholders are part owners of the company and may have voting rights on important issues.

  5. Diversification: Investing in a range of shares can diversify your investment portfolio, potentially reducing risk.

Risks Associated with Shares:

  1. Market Volatility: Share prices can be volatile, with values fluctuating due to market conditions.

  2. Economic Risk: Economic downturns can affect the overall stock market and individual share prices.

  3. Company-Specific Risk: Poor management or product issues can negatively impact share value.

  4. Legislative or Regulatory Changes: New laws or regulations can affect a company's profitability and share price.

  5. Dividend Variability: Dividends are not guaranteed and can be cut if a company's performance declines.

  6. Capital Loss: If share prices drop and shares are sold, investors can lose some or all of their invested capital.

  7. Inflation Risk: Inflation can diminish the real value of the returns on shares.

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While a theoretical understanding of the difference between stock and share is important, a representation of stock and share difference is also important:

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FAQs

How is the value of a share and stock determined?

The value of a share is determined by the company value. Once the investor buys the share, it can increase or drop in value depending on the company performance. The value of stock, on the other hand, is determined by the amount of shares owned and the performance of each issuing company. An investor can maintain a healthy stock portfolio even if performance in one of the issuing companies fails.

Can the terms stocks and shares be used interchangeably?

Yes, in American English, both words are used interchangeably to refer to financial equities, specifically, securities that denote ownership in a public company. However, the difference between the two words has more to do with syntax and is derived from the context in which they are used.

What does it mean to own stocks or shares?

When an individual owns shares of several companies, you can say that they own stocks. But if someone bought shares of a specific company, they only own shares.

What is the smallest denomination of a company stock?

A share is the smallest denomination of a company stock. So, each unit of stock is a share, and each share of stock is equal to a piece of the companyu2019s ownership.

What are the benefits of owning stocks or shares?

Investors aim to buy the stocks of companies that are likely to increase in value. When such appreciation takes place, the stockholder can sell the stocks and earn a profit. Apart from this, as a result of their part-ownership, stockholders often receive a share of the companyu2019s profits in the form of monthly, quarterly, or annual dividend payments.

About the Author
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Jaya Sharma
Senior Executive Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio

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