How is a stock company defined?

A stock company is defined as a company owned by shareholders who invest in the company, and these shareholders are entitled to share in the profits generated by the company. The profits are typically distributed in the form of dividends. The shareholders possess equity in the stock company, and their financial investment provides the capital necessary for the company to operate and underwrite insurance policies.

This structure contrasts with mutual companies, which are owned by policyholders who share in the profits of the company as well. While both types of companies provide insurance, the distinction lies in ownership and the distribution of profits. Unlike nonprofit organizations, which do not operate to generate profit for owners or shareholders, a stock company focuses on profitability and economic returns to its investors. Additionally, a cooperative group that shares risk pertains to a different model that emphasizes collective risk-sharing among members rather than profit-driven ownership.