Shares vs Stocks: Key Differences and Types

Shares Vs Stocks: These are the two terms that are used interchangeably, but have different meanings. Understanding the key differences between stocks and shares is important for investors looking to invest wisely and improve their financial literacy. Shares are the representation of individual units of ownership in a specific company, whereas Stock is a broader term referring to the ownership of a corporation in general. Check here to understand all the details about shares vs stocks, their types, and the key differences between them.

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Shares vs Stock Overview

The debate about Shares vs Stocks centers around terminology, specificity, and context. Although both terms are often used interchangeably, there are certain key differences between them. They can be summarized as follows:

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What is Share?

Shares refer to the individual units of ownership in a particular public company. When an investor buys the shares of a company, they become a shareholder. It means that they now specifically own a portion of the company proportional to the number of shares held. Shares can be of different types, which can be summarized as follows:

• Common Shares: They are the most prevalent form of shares. Investors holding common shares have voting rights in the company's decisions and are eligible to receive dividends from the portion of the company’s profit. Common shareholders are the last ones to be paid in the event of the liquidation of the company.

• Preferred Shares: Investors holding preferred shares generally do not have voting rights. But, they are eligible to receive fixed dividends from the company’s profits. They are prioritized over common shareholders in the event of liquidation.

• Equity Shares: It is often used interchangeably with common shares and refers to residual ownership generally carrying voting rights.

• Bonus Shares: It is used by the company to distribute to its existing shareholders without any additional cost, in proportion to their current shareholding.

• Right Shares: It is the type of shares that are offered to existing shareholders at a discounted price before the company makes it public.

Shares are also categorized into two types based on their marketability. They are:

• Public Shares: Traded on stock exchanges

• Private Shares: Held by a limited group of investors and not available publicly.

What is Stock?

Stock is used as a broader term referring to the ownership of a corporation in general. When someone owns stock in a company, they own one or more shares of that company. In several countries, stock is used in place of shares, but in technical terms, stock represents a collection of shares from one or multiple companies. Stocks can be of different types, including:

• Common Stocks: It is a form of corporate equity ownership, or a type of security.

• Preferred Stocks: It is a type of equity representing ownership of a company and presents the right to claim income from its operations.

• Hybrid Securities: It is a combination of equity and debt in a company.

• Stock Options and Derivatives: These are not ownership instruments, but are generally derived from stock prices.

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Shares and Stocks for Beginners

The difference between shares and stocks can seem minimal for beginners. This is because, in financial terms, both are used interchangeably.  However, a proper understanding of their functional and operating differences can improve the clarity and investment decisions of beginners. Their importance for beginners can be summarized as follows:

• Transparency in Ownership: Beginners need to understand that there is a difference between owning 100 shares of a company and owning company stocks.

• Investment Decisions: Before investing in shares, beginners should know that different types of shares have different rights and dividend expectations.

• Financial Literacy: A better understanding of Shares vs Stocks leads to more informed decisions and investment options for beginners. 

Difference between Share and Stock With Example 

Shares vs Stocks are often used interchangeably in financial terms but carry different meanings. Shares refer to specific units of ownership in a company, which come with defined rights and entitlements, whereas Stock is a generic term that includes all forms of equity ownership across companies. The differences between shares and stocks can be explained with the following example:

Example: Shares represent the smallest unit of ownership in a specific public company. Owning 100 shares of Tata Motors means owning a portion of that company. Shares in the same company have similar values. But when someone says he owns stocks, it indicates that he has investments across various companies. This means that the investor will be holding shares in Tata Motors, HDFC Bank, and other firms.

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