Introduction to Common Stock or Ordinary Share
Stocks or securities are generic terms that stand for instruments of ownership like shares, as well as instruments of lending like debentures, which are issued publicly. Just as a share represents the smallest unit of ownership, a debenture or a bond represents the smallest unit of lending. Shares and debentures may be of various kinds. An ordinary share represents the form of fractional ownership in which a shareholder (one who holds ordinary shares), as a fractional owner, undertakes maximum entrepreneurial risk associated with a business venture. This risk has several dimensions. During the life of a business, in general, an ordinary shareholder receives dividends out of operating surplus. This surplus is the residual from the revenue, after subtracting all the operating expenses, the interest charges on all kinds of borrowing, various taxes, and dividends due to the non-ordinary shareholders. Now, various economic factors, government policies, Continue reading