The terms "stocks" and "shares" often get used interchangeably – and in most contexts, the difference between them is not significant enough to matter. If you own shares of a company, you own stock in that company, and vice versa. There is a difference, though, one that boils down to the general vs. the specific.
The subtle difference between "stock" and "share" is ownership in a company. Although both stockholders and shareholders are part-owners in a company, the number of shares determines what percentage of the company you own.
What Is Stock?
Stock refers to equity ownership in a company. If you own stock in XYZ Inc., then you are literally an owner of XYZ Inc., and you have a claim on the company's assets and profits. If the company chooses to distribute a portion of its profits as dividends, you get a cut of those profits. Owning stock also gives you the right to vote for the board of directors and on any proposals that the board puts before stockholders.
What Are Shares?
Shares represent the individual "slices" of ownership in a company. Your influence as a stockholder depends on how many shares you own. If you own one share of XYZ Inc. stock and your neighbor owns two shares, you are both stockholders and part-owners of the company, but your neighbor owns twice as much of the company as you do.
Dividends and voting rights are assigned to stockholders on a per-share basis. If you get 50 cents in dividends, your neighbor gets a dollar. You have one vote for the board, while your neighbor gets two votes.
Types of Stocks
Investors and financial analysts have countless ways to classify stocks. Stock examples include tech stocks, financial stocks, blue-chips, growth stocks, value stocks, small-cap and large cap stocks. What's important to understand is that these classifications don't refer so much to the stocks themselves as to the companies that issued them.
A "tech stock" is one issued by a company in the technology industry. A "blue-chip" stock is issued by a large, stable company with a dominant position in its industry. Common stock and preferred stock aren't really types of stocks; they're types of shares.
Types of Shares
Companies issue different types of shares. The most common type is, fittingly, common shares. These are the basic shares of a company. When you see a company's share price quoted on a ticker or in the media, that's the price for one common share.
Preferred shares are less common, though not at all rare. They function much like bonds because they come with guaranteed dividends and give their holders a priority claim on the company's assets in the event the company goes out of business, but they typically don't have voting rights. Meanwhile, companies sometimes issue different classes of shares with different privileges.
For example, Class A common stock may come with one vote per share, while Class B common stock may come with 10 votes per share. This is how founders and families can sell stock and still retain control of a company.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.