The capital stock (often referred to simply as stock) of a corporation constitutes the equity stake of the corporation’s owners. These owners are the stockholders. The stock of a corporation is partitioned into shares.
In financial markets, the terms stock and share (and consequently also the terms stockholder and shareholder) are often used interchangeably. Historically, you would receive a physical share certificate as evidence of your ownership of one or several shares. Today, it is more common for ownership to be recorded electronically, e.g. in CREST.
Common stock and preferred stock
Stock typically takes the form of shares of either common stock or preferred stock.
Common shares will normally come with voting rights, while preferred stock normally do not provide the owner with any such rights. The main advantage with preferred stock is that the holder is entitled to dividend payments before any dividends can be payed to holders of common shares. Also, in case of liquidation of the corporation, preferred stock is given preference over common stock.
In the United Kingdom, preferred shares are known as preference shares.
Convertible preferred stock is preferred stock where the owner may convert the preferred share into a fixed number of common shares. Usually, the owner can request for this conversion to take place at any time after a specific date that was set when the convertible preferred stock was issued.
Stock companies existed as far back as the Roman Republic, where two types of shares were issued: partes (for large cooperatives) and particulae (an equivalent of today’s over-the-counter shares). Cicero talks of partes illo tempore carissimae (translation: partes that were very high-priced at the time), which indicates that the price of partes wasn’t fixed.
We know that shares were traded in Sweden in the 13th (read more at sparapengar.com). A document has survived that outlines a stock transfer for shares in Stora, a company active in both forestry products and mining. We also known that shares were traded in France during this century, including shares in the Société des Moulins du Bazacle (the Bazacle Milling Company) and that the share price for this company depended on the profitability of the mills owned by it.
One of the most famous historical joint-stock companies is the English Honourable East India Company. Over time, the close ties between this company and the British state created a situation where the company basically ruled India.
In 1602, the Dutch East India Company issued the first shares ever to be traded on the Amsterdam Stock Exchange. The creation of a formalized stock exchange in Amsterdam greatly enhanced the ability for joint-stock companies to attract investors, and it also facilitated increased speculation in shares since buying and selling them became much easier than before. The opening of the Amsterdam Stock Exchange is therefore seen as a very important milestone in the history of trade and speculation in financial instruments. At the 17th century Dutch market, not only stock company shares but also futures and stock options were traded, and there is evidence for short selling.