You may be familar with the UK ‘Stocks & Shares’ ISA which appears generous in allowing both shares AND stocks in the tax-free wrapper. On the financial news, reporters sometimes refer to ‘how to invest in shares‘ and at other times report on ‘stocks’. This raises the common question of what is the difference between stocks and shares?
Answer: There is no difference between stocks & shares.
Indeed, both words are used completely interchangeably. Individuals may have their own personal opinion on the subtle difference in context, but nobody could ever claim that you are using one inappropriately in place of the other.
Put simply, a stock or share is the ownership of a certificate giving the owner a fraction of the assets, distributions and control of a company.
Assets: Shareholders receive specific fraction of leftover assets if the company is wound up and liquidated to pay its debts. Their claim to assets is usually superceded by virtually all other claims, such that in bankruptcy and liquidation there is rarely much leftover for the shareholders.
Distributions: The owner of an ordinary share has the right to receive the appropriate fraction of any dividends distributed. No one shareholder may be discriminated against or given preferential treatment over other shareholders of the same class.
Control: One ordinary share typically gives the holder one vote to use at annual general meetings and other special resolutions that require a shareholder vote. The number of shares issues by a company is at the total discretion of management, so 1000 shares in one company may give the owner a lower fractional share than 10 shares in a different company.
Classes of Shares
Companies sometimes offer different ‘classes’ of shares which each have different rights, such as enhanced claims over assets upon winding up, or the right to be paid a fixed minimum dividend before all our shareholders are allowed to receive one. These shares are usually called preference shares, and carry a higher value than ordinary shares to reflect their increased claims.