Investors build the financial resources of a business by buying shares of stock in corporations. Corporations fund their activities with the money they receive from the investors. These activities include designing new products or implementing new enterprise resource planning, or ERP, systems. As the company grows in value, stockholders benefit from an increase in the value of their investment. Investors own full shares or partial shares. Several differences exist between full and partial shares.
Each share of common stock represents partial ownership in the corporation. The company issues shares of common stock whenever it needs to raise money. The number of shares outstanding represents the shares the company sold and issued to stockholders. Each investor owns a different quantity of stock. Each investor calculates his ownership percentage by dividing the number of shares he owns. These shares include full and partial shares.
The company issues full shares of common stock when it sells them to investors. The company issues partial shares to investors when it distributes a stock dividend. Stock dividends increase each investor’s ownership by a specific percentage. The company also changes each investor’s ownership through stock splits and reverse stock splits. Stock splits occur when the company decides to divide each share into more than one. Reverse stock splits occur when the company combines multiple shares into one. The investor calculates the total number of shares she owns by adding up the quantity from each set of shares she received.
One difference between full and partial shares of stock involves the method used to acquire the shares. Corporations issue full shares of stock when investors purchase those shares outright. Investors acquire partial shares when companies issue stock dividends. Stock dividends add a partial share to the investor’s portfolio for each full share he owns. Some investors choose to have cash dividends reinvested automatically. A dividend reinvestment plan authorizes the company to keep the cash dividends and use that money to purchase additional shares. The additional shares purchased represent partial shares.
Another difference between full and partial shares considers the amount of cash dividend paid to each stockholder. When the company declares a dividend, it reports them on a per-share basis. Investors who own full shares receive the full dividend amount for each share. Investors who own partial shares receive a lesser amount.
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