People can become partial owners of a company in exchange for a fixed amount of money. Stake, share, and stocks are very commonly used terms to describe company ownership. These words are often used interchangeably so it is very important to understand their meanings and differences.
A stake is the percentage of stocks that a person owns of a company. On many occasions stake is used to express ownership of a company. On the other hand, share refers to units of stock in a public company. Usually, each share represents one “unit” of ownership of a company. Share can have different meanings in a business setup but stake has a simple meaning and that’s how much money you have invested in a business/company.
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What Is Stake In Business?
In a business, a stake is usually referred to as the amount of stock an investor owns. In fact, it represents the percentage of stock you own for a business. On many occasions, stake means more than the amount of stock you own for a company. Sometimes, a stake is used to convey partial ownership in a company. For example, if you and another investor decide to buy an investment property together then you could say that both of you own a stake in that property, even if there is no formal stock structure available.
Moreover, bondholders are also considered stakeholders in a company because they receive a percentage from the profit of a company. When people invest in a small, non-public company, they receive a stake in the business in exchange for their investment. For example, if a business wants to raise $80,000 fund in exchange for a 25% stake of the business; investing $80,000 in that business could give you 25% of that business’s profits onwards.
A share represents the ownership of a company and it is also the smallest piece of a company’s stock. It is exchangeable as well as determines the value of a business. The price of a share can fluctuate depending on various market factors. So, when the price of share increases, the value of the business also increases. In a reverse way when the price of a share decreases, the value of a business also decreases. Share defines the relationship between the company and the shareholder. The given lowest price of a share is its face value and the total face value of an issued share is considered as the capital of the company.
Usually, a company divides its stocks into shares and each share represents “one unit” of the company’s ownership. The more the number of shares a company has the less the unit of ownership each share represents. For example, if a company has 10,000 shares and you own 1 share of that company then you own 1/10,000 of that company.
Many people think stake and share are interchangeable. But there are many differences between stake and share regarding the involvement and the investment of a business. A shareholder is always a stakeholder but a stakeholder is not always a shareholder. Here are some key differences between stake and share.
1. A stake is the percentage of stocks of a company while a share is the one unit of ownership of a company
2. Shares are the smallest unit of stocks of a company but the stake is the collection of stocks that a person owns of a company
3. Shares represent the proportion of ownership in the company while stake indicates how much you have invested in a company.
4. A stake is the combined aggregation of stock while a share is the simple aggregation of stock.
5. Shares are issued at par, discount, or at a premium but stakes are issued to raise funds for a company.
6. Two different shares of the same company might have the same value but two different stakes of a company might not have the same value.
7. A share usually has a distinctive number but a stake doesn’t have such a number.
8. Shares are fully paid up or partially paid up but stakes are always fully paid up.
9. The preference of share in terms of transfer is low but the preference of stake in terms of transfer is very high
10. Shares can’t be infractions but stakes can be infractions.
11. Stakeholders are the investors of a company while shareholders invest money to buy the ownership of a company.
Despite the difference between the stake and share both terms help to determine the ownership of a company in their own way. You can use both stake and share when you are discussing about the company ownership and stock market.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.