financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...

, a share is a unit of equity ownership in the

capital stock A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capi ...

of a corporation, and can refer to units of

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

limited partnership A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...

s, and

real estate investment trust A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping cente ...

Share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capita ...

refers to all of the shares of an enterprise. The owner of shares in a company is a

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

(or

stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...

holder) of the

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares. The income received from the ownership of shares is a

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

. There are different types of shares such as equity shares, preference shares, deferred shares, redeemable shares, bonus shares, right shares, and employee stock option plan shares.

Valuation

Shares are valued according to the various principles in different

market Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...

s, but a basic premise is that a share is worth the price at which a transaction would be likely to occur were the shares to be sold. The

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity, the ability to meet cash obligations when due * Liqui ...

of markets is a major consideration as to whether a share is able to be sold at any given time. An actual sale transaction of shares between buyer and seller is usually considered to provide the best prima facie market indicator as to the "true value" of shares at that particular time. A

minority discount Minority discount is an economic concept reflecting the notion that a partial ownership interest may be worth less than its proportional share of the total business. The concept applies to equities with voting power because the size of voting positi ...

is usually applied when valuing a minority shareholding (less than 50%), where ownership of the shares offers limited control over the business if this is held by a majority shareholder.

Terminology

Shares outstanding Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them. They are distinguished from treasury shares, which are shares held by the corporation itself, thus representi ...

are those that are authorized by the government, issued by the company, and held by third parties. The number of shares outstanding times the share price gives the

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by t ...

of the company, which if the trading price held constant would be sufficient to purchase the company. *

Treasury share A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market ("open market" including insiders' holdings). Stock repurchases are used as a tax efficien ...

s are authorized, issued, and held by the company itself. *

Issued shares In finance and law, issued shares are the shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. The act of creating new issued shares is called ''issuance''. Allotment is simply the transfer of sha ...

is the sum of shares outstanding and treasury shares. *

Shares authorized The authorised capital of a company sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its con ...

include both issued (by the board of directors or shareholders) and unissued but authorized by the company's

constitutional documents In relation to juristic persons, the constitutional documents (sometimes referred to as the charter documents) are the documents which define the existence of an entity and regulate the structure and control of that entity and its members. The pre ...

Tax treatment

Tax treatment of dividends varies between tax jurisdictions. For instance, in

India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...

, dividends are

tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

free in the hands of the shareholder up to INR 1 million, but the company paying the dividend has to pay dividend distribution tax at 12.5%. There is also the concept of a deemed

, which is not tax free. Further, Indian tax laws include provisions to stop

dividend stripping Dividend stripping is the practice of buying shares a short period before a dividend is declared, called cum-dividend, and then selling them when they go ex-dividend, when the previous owner is entitled to the dividend. On the day the company trade ...

Share certificates

Historically, investors were given

share certificate In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal document that certifies the legal interest (a bundle of several legal rights) of ownership of a specific number of shares (or, under Ar ...

s as evidence of their ownership of shares. In modern times, certificates are not always given and ownership may be recorded electronically by a system such as

CREST Crest or CREST may refer to: Buildings *The Crest (Huntington, New York), a historic house in Suffolk County, New York *"The Crest", an alternate name for 63 Wall Street, in Manhattan, New York *Crest Castle (Château Du Crest), Jussy, Switzerla ...

or DTCC, a

central securities depository A central securities depository (CSD) is a specialized financial organization holding securities like shares, either in certificated or uncertificated ( dematerialized) form, allowing ownership to be easily transferred through a book entry rather t ...

References

External links