Share

What Is a Share?

A share is a unit of ownership in a company. Buying one share makes you a part-owner of that business, although the stake is usually tiny. Shares are often called stock, and the two words are used interchangeably in everyday speech. Companies create shares to raise money, typically by selling them to investors in public offerings or private funding rounds.

Owning shares gives you a claim on a proportional part of the company's assets and earnings. If a business has 1,000,000 shares outstanding and you hold 10,000 of them, you own 1 percent of the company. Your claim is a residual one: after employees, lenders, and other creditors are paid, whatever remains belongs to shareholders.

How Shares Work

Shares are bought and sold on stock exchanges and other trading venues. Their prices move with supply and demand, which reflect investors' expectations about the company's future profits, financial health, and the broader economy. Investors can earn money from shares in two main ways: by selling for more than they paid, which is a capital gain, and by receiving payments from the company called dividends, which the board of directors chooses whether to pay. A company is never required to pay a dividend.

Shareholders usually have voting rights on major corporate decisions, such as electing the board of directors. Most companies give one vote per share held, though some use different voting structures.

Shareholders generally enjoy limited liability, which means the most they can lose is the amount they invested. If a company fails, its shares can become worthless, but shareholders are not personally responsible for its debts.

Common and Preferred Shares

Most companies issue common stock, which typically carries voting rights and a share of profits. Some also issue preferred stock, which usually pays fixed dividends and has priority over common shares if the company is liquidated. Preferred shares often carry limited or no voting rights.

Why Shares Matter to Investors

Shares are one of the most common ways individuals invest in companies, and they offer potential growth in value and income. They also carry risk. Prices can fall sharply, dividends can be reduced or eliminated, and a company that performs poorly may lose most of its value. Understanding what a share represents, and how a company's market capitalization relates to its share price and number of shares, helps investors judge what they are actually buying.