What do shares of stocks represent?

Shares of stocks represent ownership in a company. When an individual purchases shares, they acquire a stake in the company’s assets and earnings, which entitles them to a proportion of any profits the company makes, as well as voting rights in certain corporate matters. This ownership can give shareholders a voice in decisions affecting the company and allows them to participate in its growth and success through capital appreciation and dividends.

Ownership through stock shares also means that shareholders have a claim on the company's assets in the event of a liquidation, although it is important to note that they are last in line after creditors and bondholders. This aspect of stocks fundamentally distinguishes them from other financial instruments, such as loans or agreements that do not confer any ownership stake or rights within the company. In contrast to temporary investment agreements or contracts for future profits, stock ownership is associated with permanent participation in the underlying entity until the shares are sold, making the representation of ownership the defining characteristic of shares of stocks.