UK Accounting Glossary
A word with two different meanings. It may be used to describe an inventory of goods held for resale or for use in business. It may also be used to describe shares in the ownership of a company. The meaning will usually be obvious from the way in which the word is used.
Stock is a security issued in the form of shares that represent ownership interests in a company. There is both common stock (often simply called “stock,” “shares,” or “equity”) and preferred stock. Common stockholders elect the company’s board of directors and actively participate in the company’s success (or failure) through a rising (or falling) stock price. Common stockholders may also receive dividends, provided the company is profitable, obligations to commercial creditors and bondholders have been met, and the board sees fit to declare them. In the event of liquidation, however, common stockholders have no right to assets until all other obligations of the firm have been met. Common stockholders may have “pre-emptive” rights to maintain their percentage ownership of the firm. For example, a common stockholder with 100 of the 1,000 outstanding shares of the company, or 10%, may (or may not) have the right to buy 10 shares of a new issue of 100 shares. Preferred stockholders, in turn, are generally guaranteed dividends at a fixed rate, but they have limited voting rights.
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This glossary post was last updated: 23rd December 2018.