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A stock corporation is a company whose ownership is divided into parts called shares. The buyers of these shares, known as stockholders or shareholders, elect the directors who govern the corporation. All stock corporations are for-profit organizations.
To form a stock corporation, a company files articles of incorporation or a corporate charter. These documents register the corporation and provide basic information about the company, such as its address and the kind of business it is. In forming a stock corporation, the company will also be required to determine the amount of and type of stock that will be issued.
Once stock is issued, the shares can be sold to stockholders. In some cases, the corporate charter or by-laws may place restrictions on whom stockholders can sell their shares to. While there may be restrictions on the resale of stocks, the shares are considered the stockholder's property and do not belong to the corporation itself.
Generally, a stock corporation has limited liability. In such a case, the stockholders are only financially responsible up to the amount of money invested in the company, which they will lose if the corporation fails. If the corporation is in debt beyond the value of its assets, however, the stockholders are not responsible.
A stock corporation can be publicly or privately held. In some case, a privately held stock corporation may put restrictions on whom shares can be sold to. Closely held companies, with few stockholders, often make such restrictions.
If a company is publicly held, then the stocks are available to be purchased by any party. These companies are often registered in a stock exchange where the shares can be traded extensively. Publicly traded companies may bring in money by selling off more shares. They can also use profits to purchase shares of the company back from stockholders.
Stockholders can make money from their shares by selling them for a profit or by collecting dividends. If the value of the shares has risen, the stockholder may choose to sell them. Though the purchaser is paying more than the seller did for the shares, they are buying the same percentage of the company that the seller had.
Dividends are payments made by a stock corporation to its shareholders. Dividends generally come out of company profits and may be paid in cash or more shares.
Stockholders are eligible to have input in company policy. This can include decisions related to electing board members, purchasing other companies, and making certain investments. Stockholders vote on these decisions. In some companies, stockholders receive recommendations from company management on how they should vote.
The number of shares that a stockholder owns in a stock corporation determines the number of votes allocated to that stockholder. If one person owns more than 50 percent of a company, he is said to have a controlling interest in the corporation. As his voting power is more than all other stockholders combined, he has substantial influence in the management of the corporation.
How are stocks shares sold to stock holders and why?