Friday, October 17, 2008

Why do we need stock markets?

This article has made it to the front page of digg written by Alec Chrystal. Here is the excerpt:

A key reason for forming a company is that the shareholders of a modern company have "limited liability". This means that a shareholder can lose what they paid for their shares in a company but they are not liable for the debts of the company beyond that. This is not true in, for example, a partnership, where partners are jointly liable for all the debts incurred.

Investing in company shares is thus potentially attractive, as shareholders get a share of the profit of the business but know that the worst that can happen is that they lose the value of the original investment.
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