compared to forming a business partnership, investing in a corporation is much easier and safer. Stockholders do not need to help make day-to-day business decisions the way partners do. Those business decisions are left up to the board of directors. If stockholders do not agree with the decisions made by the board, they can vote for new members or simply sell their stock and invest in another corporation.
Because stockholders own the shares of a corporation, many businesses in the United States face a situation known as «double taxation.» The government taxes both corporate profits as well as the personal income of all the shareholders when they receive dividends or distributions of corporate profits.
Investors who buy stock in profitable corporations usually receive dividends. A dividend is a portion of the company’s profit paid on each share of stock. Investors who own a lot of stock receive large dividend payments.
Stockholders are also protected if a corporation fails. Unlike sole proprietors or partners, stockholders are not responsible for any of the corporation’s debts.
Benefits of Being a Stockholder
A corporation is a legal entity. It has rights to buy, sell, trade, and own property. It must also pay corporate taxes. A corporation has many advantages for its owners and stockholders. One of those advantages is limited liability. As a stockholder, you cannot lose more than you initially invest.
When a company is doing well and paying high dividends, there are always other investors who want to buy that company’s stock. This drives the price up. Stockholders can earn money in two ways: through dividends and by selling their shares for more than the original purchase price.
Still, investing by purchasing stock in a corporation can be risky. People who invest in stocks often lose money because they choose the wrong company.
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