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Corporations & Stocks

Corporations & Stocks

corporations-stocks Terms

Bear Market

A time when stock prices generally are falling.  Most investors dislike bear markets, preferring instead the general upward trend of bull markets.  It is still possible to make money in a bear market, but most people hope that bear markets will quickly come to an end.

Bull Market

A time when stock prices generally are rising.  Most investors love bull markets, when the general trend is upwards and investments like mutual funds tend to earn great returns.

Call Option

Options, for example, give you the opportunity to buy or sell a stock at a specified price during a limited period of time. A call option gives you the option of selling stock at the strike price during an agreed upon period of time. An option allows you to hedge your bets—lock in a certain price before it changes to your disadvantage. But you pay for this certainty. Your final gain or loss will include the price you pay for the option.

Capital Gain

The profit made on the sale of an asset. In other words, the difference between the purchase and selling price of a stock.  If you buy a stock for $100 and sell it a year later for $120, your capital gain was $20. 

Charter

A state-issued license for a business to incorporate. Only this charter is what gives the business its status -- and rights and obligations -- as a corporation.  Historically, charters were only granted to companies that performed some kind of socially useful purpose (running a ferry across a river crossing, for example).  Nowadays, charters are available to any kind of business that wants to pay the fees to incorporate.

Common Stock

A type of corporate stock that confers voting rights but does not guarantee a dividend. Common stock holders participate in the election of the board of directors. The most common type of stock (hence the name, rimshot).

Dividends

Quarterly distribution of corporate profits to shareholders.  Not all stocks pay out dividends.

Initial Public Offering (IPO)

The first issue of stock when a privately owned corporation decides to “go public” or sell stock to anyone who wants to buy it.

Limited Liability

Personal assets of corporation’s owners are separated from the corporation’s assets. Personal assets are shielded from any financial or legal action taken against the corporation. Limited liability is, perhaps, the most important benefit of incorporation, since it allows a business owner to avoid personal financial ruin if something goes wrong with the business.

Partnership

A type of business in which two or more individuals combine their efforts and share the profits of the business. The business is an asset owned by the owners, it has no existence separate from the owners, and any financial or legal problems encountered by the business are the legal responsibility of the owners. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

Preferred Stock

A type of stock that does not confer voting rights but usually guarantees a dividend. Preferred stock holders do not participate in the election of the board of directors.

Put Option

Options give you the opportunity to buy or sell a stock at a specified price during a specified period of time. A put option gives you option of purchasing stock at the strike price during an agreed upon period of time. An option allows you to hedge your bets—lock in a certain price before it changes to your disadvantage. You pay, however, for this certainty. Your final gain or loss will include the price you pay for the option.

Sole Proprietorship

A type of business in which one individual, the sole proprietor, exercises complete control over the business and is legally and financially responsible for the activities of the business. The business is an asset owned by the owner, it has no existence separate from the owner, and any financial or legal problems encountered by the business are the legal responsibility of the owner. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.

Stop Order

This is a standing order you place with your broker stating that he should buy or sell stocks when they reach a certain price. When you are long in a stock you place a sell stop order, telling your broker to sell the stock if the price falls to a certain point. If you are short in a stock, you place a buy stop order, telling your broker to buy the stock if it climbs to a certain price, so that you can cover your short without losing any more money.

Strike Price

This is the price specified in an option. In buying an option you buy the option of buying (put option) or selling (call option) a stock at the strike price during a specified period of time.

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