What is a share?

In simple terms

A share is one equal slice of ownership in a company. A company's ownership is divided into a fixed number of these slices, and whoever holds them owns the company together. In everyday use, "share", "stock" and "equity share" mean the same thing.

If you own shares, you are a shareholder: a part-owner of the business. The size of your part is simple to work out.

What owning a share gives you

Owning a share comes with a specific set of rights. It is worth being precise about them, because many beginners assume they own more than they do.

A claim on profits. When a company makes a profit, it can keep the money to grow the business or pay part of it to shareholders as a dividend. Each share receives the same amount. If the company pays a dividend of ₹5 per share and you own 200 shares, you receive ₹1,000.

A vote. Shareholders vote on major decisions such as electing directors, approving the accounts and approving big changes like mergers. Usually each share carries one vote. A small investor's vote rarely changes an outcome, but it is a real right.

Information. Listed companies must publish their financial results and annual reports and announce important events. As an owner you are entitled to this information, and so is everyone else.

A share of what is left if the company closes. If the company is wound up, its assets are sold and its debts paid. Anything remaining is divided among shareholders. In practice, when a company fails there is often nothing left for them.

The right to sell. You can sell your shares to another investor through a stock exchange, at whatever price a buyer will pay.

What owning a share does not give you

• You do not own any particular asset of the company. Owning shares in a car maker does not give you a claim on any car or factory.
• You cannot take a share of the company's cash or profits whenever you like. Dividends are decided by the board of directors.
• You do not run the company. The board and managers make day-to-day decisions.
• You are not guaranteed any return. Dividends can be cut, and the share price can fall.

Limited liability: your loss has a ceiling

Most companies whose shares you can buy are limited companies, which is why their names end in "Ltd" or "Limited". Limited liability means a shareholder's responsibility for the company's debts is limited to the money they put in.

This protection is one reason ordinary people can own shares at all. Note that it limits your loss to what you invested. It does not limit losses from borrowing money to buy shares, which you would still owe.

Face value and market price

Every share has a face value, also called par value, such as ₹1, ₹2 or ₹10. It is set when the shares are created and is used in the company's accounts. It has very little to do with what the share is worth today.

The market price is what buyers and sellers agree to pay on the stock exchange right now. A share with a face value of ₹1 might trade at ₹2,500. Dividends are sometimes announced as a percentage of face value, which confuses many people: a "100% dividend" on a ₹1 face value share means ₹1 per share, not 100% of the market price.

Why it matters

Understanding what a share is changes how you think about buying one. You are not buying a number on a screen. You are buying a fraction of a real business, with its customers, competitors, debts and managers.

That framing helps you ask useful questions. How does this business make money? Is it likely to make more in five years? What fraction of it am I buying, and at what price? It also protects you from people who sell shares as if they were lottery tickets, or as if they came with a guaranteed return.

Limitations

This lesson describes ordinary equity shares, the kind traded every day on Indian exchanges. Companies can also issue other kinds of shares. Preference shares usually pay a fixed dividend and are paid before ordinary shareholders if the company closes, but normally have limited voting rights. Some companies issue shares with different voting rights. These are less common and are covered in later paths.

Your rights as a shareholder also depend on the law and on the company's own rules, and enforcing them as a small shareholder can be slow.

Common mistakes

• "I own part of the company's buildings and cash." You own part of the company, and the company owns its assets. You cannot claim any asset directly.
• "A ₹10 share is cheaper than a ₹1,000 share." The price of one share says nothing about value on its own. What matters is what fraction of the company you get and how much the whole company is worth. See Market capitalisation.
• "A 100% dividend means I double my money." Dividend percentages are usually quoted on face value, not market price.
• "Shareholders can lose more than they invested." With limited liability and no borrowing, your maximum loss is what you paid.

Try it yourself

A made-up company, Indus Logistics Ltd, has 4,00,00,000 (4 crore) shares. It pays a dividend of ₹3 per share. You own 1,200 shares, bought at ₹150 each.

1. What percentage of the company do you own?
2. How much dividend do you receive?
3. If the company failed completely, what is the most you could lose?

Answers: 1,200 ÷ 4,00,00,000 = 0.003%; 1,200 × ₹3 = ₹3,600; 1,200 × ₹150 = ₹1,80,000.