Investment is the buying of securities, real estate and other items in order to obtain capital gains or income. Investors purchase assets that rise in value over time and then provide returns as income payments or capital gains. As a person goes about investing, they will notice that certain terms get used frequently. We are going to explain the terms stocks, shares, stakes and fractions in order to make this process simpler.
Stocks, Shares, Stakes, and Fractions
Let us take a look at what defines and differentiates these terms.
What is a Stock?
- A stock is a security that signifies the ownership share in a company. Investors purchase stocks they think will rise in value in time. When an investor purchases a company’s stock they are purchasing a part of the company.
- Investors buy stocks of companies they think will rise in value. When and if the company’s stock rises in value, selling it will result in a profit.
- Companies issue stock in order to collect funds for the growth of their business.
- Those who own stock in a company are known as shareholders. This is because they share in the company’s profits or losses.
- Public companies sell their stock through the stock exchange. Investors then buy and sell shares amongst each other via stockbrokers.
What is Share?
A share represents one unit of equity ownership in a company. If you own shares of a company, you are shareholder and you own a percentage of the issuing company that is proportional to the shares you have purchased
Share vs Stock
Shares are the individual units of ownership whereas a stock is a wider definition of ownership in a company.
What is a Stake?
If one owns stock in a company, then the stake represents the percentage of stock that they own. Stake is also used to communicate partial ownership in a company.
What is a Fraction?
Partial ownership can also be called fractional ownership. Fractional ownership is an investment strategy that divides the cost of an asset amongst individual shareholders. All shareholders divide the benefits of the asset in the form of income sharing, reduced rates and usage rights.
Fractional Ownership in Property
Fractional ownership in property happens when a number of investors combine funds in order to buy a property. Each investor has a percentage ownership in the asset. This method minimizes the financial load on any single investor in terms of owning property and still enables the investor to earn returns of the investment. Income and expenses are shared by all investors in proportion to their investment in the asset.
If and when the number of investors of a real estate property rises to the extent that mutual agreements cease to work any longer, investment companies come in and create an SPV (Special Purpose Vehicle). The SPV is a legal entity that owns the property and investors then own units of the SPV.
These are some key terms to familiarize yourself with for the investment world. Stocks, shares, stakes and fractions are all concepts utilized daily. Shareholder, stockholder, stakeholder and fractional owners all originate from the the above terms. We hope that this article has been informative and helpful.
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FAQs
Shares are the individual units of ownership whereas a stock is a wider definition of ownership in a company.
Any investor who holds shares in a company is a shareholder.
n SPV is a special purpose vehicle. This is used when the number of investors in a real estate property becomes so large that mutual agreements cease to work. An investment company comes in and sets up an SPV. The SPV is a legal entity that owns the property and investors then own units of the SPV.
Yes, investors share in both the profits and losses of the company they have invested in.
