A security that represents a part ownership in a company. When you buy a company’s stock you are buying a portion of that company and become a shareholder.


Suppose you owned a business and wanted to expand the company’s production capacity and its product line. To do so, you would need a lot of money, and unless you have a lot of money sitting around that you want to invest back into your company, you would have two options to raise capital:

  1. You could borrow the money from a bank or a group of investors, with the agreement to pay them back (plus interest) at a specified date. In this case, you retain the full ownership of your business (see Bonds).
  2. You could raise money by selling portions of your business (as stocks) to people willing to invest in your company. In other words, you give up partial ownership of your business to others for cash.

The second option is one example of why companies choose to sell stock. Instead of borrowing money from lenders, they choose to raise money by selling ownership of their business to investors.

When you buy stock in a company, you give that company cash to grow its business. In return, you get part ownership in the business. The more shares you buy, the more ownership you have.

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