Stock represents ownership in a company and can be bought and sold; owning stock means having a share of the company's assets and potential profits.
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Last Updated: January 26, 2026
Stocks are a type of security that represents an ownership interest in a company. Companies sell stock to help expand and invest in their business.
This article will explain the definition of stocks, the advantages and risks of stocks, and how issuing stocks can help companies grow.
When someone purchases a company’s stock, they’re buying a small piece of that company. This is also called a “share.” It’s called a share because stocks represent a share of the company’s profits. When someone buys stocks, they become one of the company’s shareholders. This article uses the terms “stockholder” and “shareholder” interchangeably.
Public companies can list and sell their stocks on stock exchanges, like the New York Stock Exchange (NYSE). The stock exchanges track sales of each company’s stock and publish information about supply and demand. This information, in addition to company events, impacts share price.
There are two main stock types that investors are likely to encounter: common stocks and preferred stocks. Common stockholders have the right to receive dividends and vote in shareholder meetings. Common stocks are what most people think of when they hear the word “stocks.”
Preferred stocks, on the other hand, have limited or no voting rights. But preferred stockholders usually get their dividends paid first and get a higher dividend payout. In the event the company is liquidated, preferred shareholders may have a claim on the company’s assets.
As mentioned earlier, investors usually buy public company stocks on exchanges like the NYSE. A company “becomes public by offering its stock for public sale.” This is called an initial public offering (IPO) and is the process by which stocks become available for investors to buy and sell on an exchange.
Stock’s advantages over other types of investment products are numerous. Here are a few of the top benefits of investing in stocks:
These are only a few stock benefits. Investors and business owners will need to evaluate and make the financial decisions that best fit their unique circumstances; that’s why it’s wise to consult a tax professional if in doubt.
Stock disadvantages include the risk of loss. When investing in the stock market, anyone could lose their entire investment. They might buy shares of a hot new IPO at $100, but within a few weeks, that stock may sell for only $10. Unfortunately, no one will refund the $90 in market losses if the shareholder sells while the stock is at $10.
Corporations issue stock to raise capital. Sometimes, companies use the money they make from selling their stock to expand their business. Other times, selling stock helps companies pay back early investors who put money into the business before its IPO.
In short, stocks are a type of security that indicates an ownership interest in a company. They are used to help a company grow. A corporation issues stock to help their company grow and to fund all kinds of business purposes and operations.
The good thing about stocks is that they are about business growth. ZenBusiness can help entrepreneurs who are looking to set up a corporation all across the U.S. Their Corporate Formation Service can help entrepreneurs form their entities quickly and easily. Running a business as a corporation can enable an entrepreneur to issue stock and potentially take part in an IPO. And once the company is up and running, ZenBusiness can help the business stay compliant with their Worry-Free Compliance Service.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
Written by ZenBusiness Editorial Team
The ZenBusiness Editorial Team has more than 20 years of combined small business publishing experience and has helped over 850,000 entrepreneurs launch and grow their companies. The team’s writers and business formation experts are dedicated to providing accurate, practical, and trustworthy guidance so business owners can make confident decisions.
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