KIM FINANCE

Stock

1. Definition

Stock (also known as equity or shares) represents fractional ownership in a corporation. * Buying a stock means you become a partial owner (shareholder) of that company.

2. Why Issue Stocks?

For a company to raise capital (money) for growth, it has two main options: 1. Debt (Bonds): Borrowing money that must be paid back with interest. 2. Equity (Stocks): Selling pieces of the company. * Benefit for Company: Unlike debt, equity does not require interest payments and does not need to be paid back if the business fails.

3. Shareholder Rewards

  1. Capital Appreciation: Selling the stock for a higher price than you paid if the company grows.
  2. Dividends: A portion of the company's profits distributed to shareholders.
  3. Voting Rights: The right to vote on corporate matters (e.g., electing the board of directors) at the Annual General Meeting (AGM).

4. The Risk (Residual Claim)

Stockholders have a "Residual Claim" on assets. * If the company goes bankrupt, it must pay off all its debts (suppliers, bondholders, employees) first. * Shareholders get paid last. In most bankruptcies, this means shareholders get nothing ($0).

5. Summary