What is a share?
Owning a share means owning a tiny slice of a real company.
A slice of the pie
A company can be split into millions or billions of equal pieces called shares (also called stock). If you own one share, you own a tiny fraction of that company: its buildings, products, brand and future profits.
Companies sell shares to raise money to grow. The first time a company sells shares to the public is called an IPO, or initial public offering. After that, shares mostly trade between investors.
How shareholders can make money
There are two main ways. First, the share price can rise if the company becomes more valuable or investors become more optimistic about it. Second, some companies pay part of their profits to shareholders as dividends.
There is also a downside. If the company struggles, the price can fall. If it goes bankrupt, shareholders are last in line and often get nothing. Your loss is limited to what you put in, though: you can't owe more than you paid for a share you bought outright.
Shareholder rights
Shareholders usually get a vote on big decisions, such as electing the board of directors, roughly one vote per share. In practice, small investors have very little say. The real benefit is owning a claim on the company's success.
Imagine a pizza company split into 1,000,000 shares. You buy 100 shares at $20 each, spending $2,000. You own 100 / 1,000,000 = 0.01% of the company.
If the company grows and the share price rises to $25, your shares are worth $2,500, a $500 gain. If the price drops to $15, they are worth $1,500. Nothing is gained or lost until you sell, but the value is real either way.
Key terms
- Share (stock)
- A unit of ownership in a company.
- IPO
- Initial public offering: the first time a company sells its shares to the public.
- Shareholder
- Someone who owns shares in a company.
A share is part-ownership of a real business, and its value rises and falls with that business's prospects.