The Difference Between Stakes, Shares and Stocks

by Cam Merritt

A corporation ultimately answers not to the CEO or even to the chairman of the board, but to its owners -- the stockholders. "Stakes," "shares" and "stocks" all refer to the allocation of ownership in corporations. Put simply, your stake in a company depends on how many shares you own of its stock.

Stocks

Stock is the means by which a corporation distributes and recognizes ownership. Every corporation issues stock, and whoever owns that stock literally owns the corporation. That ownership may be divided among thousands or millions of people, but each is a legitimate owner, entitled to vote for the members of the board of directors and, in many cases, to collect a portion of the company profits as a dividend. When people say they own "stocks," it generally means that they have purchased stock in several different corporations.

Shares

Companies divide their stock into shares, with each share representing one "unit" of ownership. The more shares the company has "outstanding" -- that is, issued and available for trading -- the smaller the slice of ownership each individual share represents. For example, as of March 2011, IBM had about 1.211 billion shares of stock outstanding. If you owned one of those shares, you owned 1/1,211,200,200 of IBM. A company's "stock price" is really its per-share price.

Stakes

Your "stake" in a company represents the total percentage of its stock you own. If you owned, say, 25 million of IBM's 1.211 billion outstanding shares, you would have about a 2-percent stake in the company. The more shares you own, the greater your stake. A stake of greater than 50 percent in a typical company will ensure control of that company -- although its sometimes possible to exercise control over a company with less than a majority stake, depending on how the other stock is distributed.

Types and Classes

Be aware that companies can and do issue different types and classes of stock, which can make some shares worth more than others and can affect the influence of a stockholder's relative stake. For example, a company might issue two classes of common stock. Class A stock might carry with it one vote per share, while Class B stock gives its owners 10 votes per share. (This is how the Ford family maintains control over Ford Motor despite holding only a small stake.) Meanwhile, many companies issue "preferred" stock. Preferred shareholders usually have no voting rights, but they are first in line to get dividends and would have a higher-priority claim on the company's assets if the company went out of business.