Question

Stocks: Benefits and Risks

What does the ownership of stock represent? What are some of the benefits of owning stock? What are some of the risks?

Answer 1

Ownership of stock represent represents the claim on company's assets and earnings. Stocks represent a share in company's capital. It represents the ownership in the company on the basis of stock acquired by the investor.

Some of benefits of owing the stock are as follows:

(1) Profit sharing (2) Active participation in decision making through voting right (3) Liability of stock holders are limited (4) Have a claim on company's assets earnings

Some of the Drawbacks of owing the stock are as follows:

(1) High degree of risk involved (2) No surety of dividend and capital gain (3) no preference in liquidation (4) irrelevant power to vote