Page 178 - A Canuck's Guide to Financial Literacy 2020

178

Equities

Stocks & Common Shares

Stocks also known as “shares” or “equity” allow you to buy a certain percentage of
ownership of a public company trading on the stock market. The number of shares that you
buy would represent a claim on the company’s assets and earnings.

When you purchase shares of a public company, you’re known as a shareholder. As a
shareholder, you’re eligible to participate in the company’s profits through pay out
of dividends plus you’re eligible for voting rights.

Listing on the Stock Market

Private companies become public companies when they list on the stock exchange. A stock
exchange is a marketplace for trading securities, commodities, derivatives and other
investment instruments. There are multiple stock exchanges and before a company decides
to “go public”, they must meet listing requirements of the exchange that they’re listing on.

Example: NASDAQ and New York Stock Exchange have listing requirements that a
company must meet before they get approved. Some of the requirements include: shares
outstanding, company value, initial share price, number of shareholders and more!

Initial Public Offering (IPO)

When a private company is looking to go public, they must do an “IPO” also known as an
“initial public offering.” During this process, the company will be looking to sell its private
stock to the general public.

As a company “goes public”, regular investors are allowed to buy shares of the company
that was once private. Public companies face strict rules and regulations. For example, they
must have a board of directors, report their financial information every 3 months and must
make sure that inside information is not communicated to the general public.