What it means to be a shareholder: some of the most commonly asked questions about stock ownership.

Ever since investors began looking for ways to make their money grow, stocks have been at the heart of investment strategies. Some view stock ownership as the best way to accumulate long-term wealth. Others look at it as owning a slice of American industry. Stocks have been the best-performing investment vehicle over time. And, short of being an entrepreneur, stock ownership is the most direct way for individual investors to be part-owners in a company. The following Q & A addresses some commonly asked questions about stock ownership:

Q: What is the difference between being a stock owner and a bondholder?

A: By purchasing a firm's bonds you become, in effect, a lender to that company. If you hold bonds until maturity, you're most likely to get back all of your investment. However, your earnings are limited to the amount of interest the company has agreed to pay. Also, bonds frequently have provisions allowing their issuers to redeem them by prepaying the debt outstanding prior to maturity. On the other hand, when you buy stock, you own part of the company. The more money the company makes, the greater potential for the price of the stock to appreciate and the dividends to increase. At the same time, if earnings dwindle, the stock's price and possibly dividends are likely to decrease.

Q: How do I participate as an investor/part-owner of the company?

A: Shareholders elect company directors and also may vote on certain significant actions. These items are generally voted on during the company's annual shareholders meeting. You may also cast your vote by mailing in a proxy, a written authorization indicating how you would like to vote on the various issues. In reality, a small number of large shareholders can possess enough voting power to decide the outcome of an issue presented for the shareholder vote. If an investor wants to challenge these stockholders, they'll have to convince many other shareholders to vote in their favor by waging a proxy fight. Also, as a part-owner, you receive regular updates on how the company is doing.

Q: Why would the founders of a company relinquish control and profits by issuing stock to begin with?

A: Simply put, companies issue stock to raise money. Although a company can borrow money to expand or for other reasons, loans may not be sufficient or cost-effective at any given time. Rather, new shares of stock are issued to outsiders. If they are sold to a limited number of large institutions or wealthy individuals (generally not more than 35), the offering is known as a private placement. Otherwise, they are issued to the general public through an initial public offering (IPO).

Q: As an individual investor, am I at the mercy of big institutions?

A: There is some controversy over whether big institutions increase volatility and risk in the market when they trade large blocks of shares. One thing is certain: time evens out the fluctuations. If you buy stock with the intention of holding it for at least three to five years, you're likely to find that your return will reflect the quality of the company and its business prospects. Moreover, an important trend that emerged during the early '90s, when individual investors bought more stock than they sold for the first time in almost 20 years, is continuing. If inflation and interest rates remain relatively low, individuals should remain significant participants in the market in the future. That could mean less focus on short-term stock performance and less short-term volatility.

Whether you look at stock investing as a way to own a piece of American business (or the business of another country) or as a path to accumulating wealth, it's a way to participate in both the triumphs and failures of private enterprise.