Share definition
/What is a Share in Finance?
A share is one unit of ownership interest in a corporation. A share entitles its owner to a portion of the dividends and residual value of the issuing entity. A shareholder is also entitled to vote on certain issues at periodic shareholder meetings. Share ownership can be evidenced by a stock certificate, but can also be an electronic record.
The issuing corporation is under no obligation to buy back shares from investors. This increases the risk of shareholders, who therefore expect a high return on their investment, either in the form of dividends or an increased market value for their shares. When this does not happen, they are more likely to sell their shares, thereby driving down the market price of the shares.
Examples of Shares
The two types of shares are common (or ordinary) shares, and preferred (or preference) shares. There can be many types of preferred shares, such as Series A preferred, Series B preferred, and Series C preferred, each with its own privileges.
Related AccountingTools Courses
Characteristics of a Share
The characteristics of a share are as follows:
Ownership interest. A share signifies an ownership interest in the issuing company. Shareholders become partial owners of the company, proportional to the number of shares they hold.
Divisibility. Shares are typically issued in standardized units that are easily divisible. This allows companies to sell fractions of ownership and makes shares tradable on stock markets.
Limited liability. Shareholders’ liability is typically limited to the unpaid amount on their shares (if any). They are not personally responsible for the company's debts.
Transferability. Shares can usually be bought, sold, or transferred, subject to legal and regulatory constraints. This liquidity makes shares a popular investment vehicle.
Par value. Shares can have a par value (a nominal value assigned to each share) or be no-par shares. Par value represents the minimum price at which shares can be issued, but it often has little relation to the market value.
Rights and privileges. Shareholders have rights such as voting in company meetings, receiving dividends, and accessing financial statements. The extent of rights depends on the type of share held.
Dividend entitlement. Shareholders may receive a portion of the company's profits in the form of dividends, though the distribution and amount depend on the company's policies and performance.
Residual claim. Shareholders have a residual claim on the company's assets in the event of liquidation, but only after creditors and preference shareholders have been paid.
Market value. The value of shares can fluctuate based on market conditions, company performance, and investor sentiment.
Source of capital formation. Shares represent a key source of capital for companies to finance operations, expansions, or other business activities.