What are Shares?

Shares in finance mean owning a piece of a company. You get dividends (profits), voting rights, and potential growth, but also face risks and market changes
OPEN ACCOUNT
What are Shares?
OPEN ACCOUNT
3 mins
19-June-2025

A share represents a unit of ownership in a company, giving investors the right to earn dividends and take on a portion of any losses. It reflects a percentage of ownership based on how much is purchased and can be easily managed through a stock market app.

A share is essentially a unit of ownership in a company. When individuals or institutional investors purchase it, they acquire a portion of the company and become shareholders. The total number issued by a company is known as its "capital stock" or "equity." Shareholders have the right to vote on certain company matters, such as the election of the board of directors and major corporate decisions. Additionally, they may receive dividends—payments from the company’s profits—and benefit from potential capital appreciation as the company grows.

What are the types of shares?

There are different kinds of shares you can buy in the stock market.

  1. Common shares
    Ownership and voting rights: Common shares represent ownership in a company and grant shareholders voting rights in important corporate decisions. They also entitle shareholders to potential dividends.
  2. Preferred shares
    Fixed dividend, no voting rights: Preferred shares offer a fixed dividend rate, usually paid before common shareholders receive dividends. However, they typically do not provide voting rights, making them attractive for income-focused investors.
  3. Treasury shares
    Repurchased from open market: Treasury shares are bought back by the company from the open market. They can be reissued to raise capital or retired, impacting the total outstanding shares.
  4. Voting and non-voting shares
    Voting rights: Voting shares allow shareholders to participate in corporate decisions through voting. Non-voting shares, while lacking voting rights, may offer other benefits, such as priority in dividend distributions.
  5. Class A and class B shares
    Differing rights: Different classes may have varying voting rights or dividend preferences. This structure allows companies to tailor ownership classes to meet strategic goals without relinquishing control.
  6. Growth and value shares
    Investment strategies: Growth shares come from companies expected to grow rapidly, attracting investors seeking capital appreciation. Value shares are associated with companies believed to be undervalued, appealing to those looking for potential long-term gains.

Features of shares

Shares represent fractional ownership in a company and come with a set of defined rights and attributes. When you invest in shares, you don’t just invest money you gain a stake in the company’s future growth, profits, and decision-making processes. Here are some key features of shares:

  • Ownership rights: Holding shares gives investors part ownership in the company. Shareholders may also have voting rights on company matters, depending on the type of shares.

  • Dividends: Shareholders may earn dividends, which are a portion of the company’s profits distributed periodically. However, dividend payments are not guaranteed and depend on the company's performance.

  • Limited liability: Shareholders’ liability is limited to the amount invested in the shares. They are not personally responsible for the company’s debts.

  • Liquidity: Shares of publicly listed companies are traded on stock exchanges, providing high liquidity. Investors can buy or sell them easily during market hours.

  • Transferability: Shares are easily transferable. A shareholder can sell their holdings to another person unless restricted by lock-in periods (in case of certain ESOPs or IPOs).

  • Capital appreciation: Over time, share prices may increase due to business growth, market conditions, or economic factors resulting in capital gains for investors.

  • Types of shares: Companies typically issue two main types of shares equity shares and preference shares each with different rights and benefits.

  • Face value and market value: Every share has a face value (nominal value set by the company) and a market value, which fluctuates based on demand and supply.

  • Risk factor: Shares are subject to market risks. Prices can rise or fall due to internal company issues, industry trends, or macroeconomic changes.

These features make shares a dynamic investment option offering both opportunities for growth and exposure to market fluctuations.

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Example of shares

For example, say ABC Ltd. issued stock and you purchased 100 units. If each unit represents 0.1% ownership, you hold 10% of the company. The company issued stock, and you bought shares of it.

Another way to think of it is that when you invest in a company, you're not buying the stock itself. "Stock" is a general term for the financial instruments a company issues, while shares are the specific units you actually own

How are shares regulated?

Shares are regulated to ensure transparency, protect investor interests, and maintain fair trading practices in the financial markets. In India, regulatory bodies and legal frameworks govern every stage of a company’s equity issuance and trading to prevent fraud, insider trading, and manipulation.

Here are the key elements of how shares are regulated:

  • SEBI (Securities and Exchange Board of India): SEBI is the primary regulator of the securities market in India. It formulates rules for listing, trading, disclosure, and investor protection to ensure fair play in the market.

  • Companies Act, 2013: This Act governs the formation, management, and responsibilities of companies in India. It defines rules for share issuance, shareholder rights, and corporate governance.

  • Stock exchanges: Platforms like the BSE and NSE monitor daily trading activity and ensure that listed companies comply with disclosure norms, trading rules, and timely reporting of financials.

  • RBI regulations: The Reserve Bank of India regulates foreign investment in shares through FDI (Foreign Direct Investment) and FPI (Foreign Portfolio Investment) policies. It also ensures compliance with FEMA (Foreign Exchange Management Act) guidelines.

  • Listing agreements: Companies listed on stock exchanges must sign and adhere to listing agreements that require them to disclose key information, including quarterly results, board decisions, and material events.

  • Insider trading norms: Strict laws are in place to prevent individuals with access to unpublished price-sensitive information from unfairly trading shares. SEBI closely monitors such activities and imposes heavy penalties for violations.

  • FDI limits and sectoral caps: The government sets sector-wise limits for foreign shareholding in Indian companies. These caps are regulated and enforced to protect national interests.

These layers of regulation work together to ensure the integrity and smooth functioning of the Indian stock market, making it a secure environment for both retail and institutional investors.

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Performance metrics of share prices

The performance metrics of share prices are influenced by various factors:

1. Company performance

Financial health: Earnings reports, revenue growth, and profit margins directly impact share prices. Positive performance metrics can lead to increased demand for a company's shares.

2. Industry trends

Sector-specific developments: Trends in a particular industry can influence the performance of related stocks. Investors should stay informed about industry news to anticipate shifts in stock prices.

3. Investor sentiment

Market perception: The overall sentiment in the market, influenced by news, analyst reports, and investor confidence, can sway share prices. Bullish sentiment leads to buying activity, while bearish sentiment can result in selling pressure.

4. Macroeconomic factors

Economic indicators: Broader economic factors, such as GDP growth, interest rates, and inflation, impact investor confidence and overall market performance. A robust economy tends to positively affect share prices.

5. Company-specific events

Influence on share prices: Events like mergers, acquisitions, product launches, or legal issues can significantly impact a company's share prices. Investors should be aware of scheduled and unexpected events that might affect their investments.

How to buy and sell shares?

Let’s explore how to buy and sell shares in the Indian stock market

Buying

  1. Choose a broker: Selecting a suitable brokerage platform is a critical first step in buying shares. Investors should consider factors such as trading fees, research tools, and the platform's user-friendliness. Different brokers may also offer varying levels of customer support and educational resources.
  2. Research stocks: Thorough research is essential before buying shares. Investors should analyse company fundamentals, financial reports, and industry trends. Understanding a company's competitive position, growth prospects, and potential risks helps investors make informed decisions.
  3. Place an order: Once research is complete, investors can place an order to buy shares. They can choose from different order types, including market orders (buying at the current market price), limit orders (setting a specific price to buy), and stop orders (triggering a purchase when the stock reaches a predetermined price).
  4. Pay: After placing an order, investors need to transfer funds to their brokerage account. Most brokers offer various payment methods, including bank transfers and credit/debit card payments.
  5. Monitor: Successful investing requires ongoing monitoring. Investors should keep track of their investments, staying informed about company news, industry developments, and changes in market conditions. Regular monitoring helps investors make timely adjustments to their portfolios.

Selling

  1. Decide to sell: Investors may decide to sell shares for various reasons, such as reaching investment goals, taking profits, or responding to changing market conditions. Deciding when to sell requires a careful assessment of the overall investment strategy and market conditions.
  2. Place an order: When ready to sell, investors can place a sell order, specifying the selling price and order type. Like buying orders, sell orders can be market orders, limit orders, or stop orders.
  3. Receive payment: Once the sell order is executed, investors receive the proceeds from the sale. The funds are typically deposited into the investor's brokerage account.
  4. Evaluate your investment: After selling shares, investors should evaluate the performance of the investment. Reflecting on the reasons for selling, analysing the overall outcome, and reassessing investment goals contribute to continuous learning and improvement in investment strategies.

Why does a company issue shares?

Companies issue shares to raise capital for business expansion, repay debt, or fund new projects and operations.

  • Raise capital for various operations: Securing necessary funds for day-to-day operations and strategic initiatives.

  • Obtain a stock market listing: Gaining a listing on the stock market can enhance the company’s credibility and attract more investors.

  • Enhance visibility: Increasing the company’s profile and public awareness, which can positively impact its market perception.

  • Extend market presence: Expanding the company's reach and influence within its industry or sector.

Benefits of owning shares

Owning shares offers potential dividends, capital growth, and the opportunity to build long-term wealth through market appreciation. Here are certain important benefits you need to know:

1. Potential for capital appreciation

Owning shares provides investors with the potential for capital appreciation. As the company grows and becomes more profitable, the value of its shares may increase over time. This capital appreciation is a key driver of long-term investment returns.

2. Dividend income

Many companies distribute a portion of their profits to shareholders in the form of dividends. Owning dividend-paying stocks can provide investors with a steady income stream, making shares an attractive option for income-oriented investors, especially in times of market volatility.

3. Ownership stake

Shareholders have a tangible ownership stake in the companies that they invest in. This ownership not only grants them certain rights, such as voting on important matters, but also aligns their interests with the success of the company. Shareholders are, in essence, partners in the business.

4. Diversification

Owning shares allows investors to diversify their investment portfolios. By holding shares across different sectors and industries, investors can spread risk and reduce the impact of poor performance in any single investment. Diversification is a key strategy for managing risk and achieving a balanced portfolio.

5. Liquidity

Shares are highly liquid assets. They can be easily bought or sold on the stock market, providing investors with the flexibility to adjust their portfolios based on changing market conditions or investment goals. Liquidity is a crucial aspect for investors who value the ability to access their funds quickly.

6. Corporate actions

Shareholders may benefit from corporate actions initiated by the companies they invest in. These actions can include stock splits, mergers, acquisitions, or spin-offs. While not entirely within the control of individual investors, these events can impact the value of shares and provide opportunities for additional gains or adjustments to the investment portfolio.

7. Social responsibility

Owning shares allows investors to support companies that align with their ethical and social values. Many investors consider environmental, social, and governance (ESG) factors when selecting companies to invest in. By investing in socially responsible companies, shareholders contribute to promoting ethical business practices and sustainability.

Risk of owning shares

The risks of owning shares include:

1. Market risks

Share prices are subject to market fluctuations, and investors face the risk of market volatility. External factors such as economic conditions, geopolitical events, and overall market sentiment can contribute to price fluctuations. Investors should be prepared for the inherent uncertainties of the market and carefully consider their risk tolerance.

2. Company-specific risks

Individual companies may face specific risks that can impact their share prices. Poor management decisions, financial difficulties, legal issues, or changes in the competitive landscape are examples of factors that can negatively affect a company's performance. Investors should conduct thorough research and due diligence to assess and mitigate company-specific risks.

3. Liquidity risks

Liquidity risk arises when there is difficulty buying or selling shares in the market at desired prices. Stocks with low trading volumes or limited market interest may experience liquidity challenges. Investors should be mindful of liquidity risks, especially when dealing with less-traded stocks, as it can affect the ease of executing trades and impact the market value of shares.

Conclusion

Shares are the backbone of the financial markets, representing not just financial assets, but also a stake in the growth and success of businesses. Understanding the different types of shares, how they function, and the associated risks and benefits is crucial for anyone venturing into the world of investing. By staying informed, investors can make informed decisions, navigate market fluctuations, and potentially reap the rewards of their ownership in companies. Whether seeking capital appreciation, dividend income, or a diversified portfolio, shares offer a myriad of opportunities for investors willing to embrace the dynamic nature of the stock market.

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Frequently asked questions

What is the meaning of shares?

Share meaning in finance refers to units of ownership in a company. Owning shares gives you a stake in the company, potential profits (dividends), voting rights, and growth benefits, but also involves sharing risks and dealing with market fluctuations.

What is called a share?

A share, also known as equity, is a single unit of ownership in a company. When a company issues shares, it is selling pieces of itself to raise capital. Each share grants the owner certain rights, such as receiving dividends and voting on important company matters.

What is a share example?

For example, if ABC Ltd. issues 1,000 shares and you buy 100 of them, you own 10% of the company. This means you have a 10% claim on the company's profits and assets. If ABC Ltd. earns a profit and declares dividends, you'll receive 10% of the total dividends distributed.

What are the 4 types of shares?

The four types of shares are:

  1. Ordinary shares: Provide voting rights and dividends that vary based on company performance.
  2. Preference shares: Offer fixed dividends and have priority over ordinary shares in asset distribution upon liquidation.
  3. Non-voting shares: Do not provide voting rights but may offer dividends.
  4. Redeemable shares: Can be bought back by the company at a future date.

Do shares make you money?

Yes, shares can make you money in two main ways: capital appreciation when the share price increases—and dividend payouts, which are a portion of a company’s profits shared with shareholders. Returns vary based on market performance and the company’s financial health.

Is it good to invest in shares?

Investing in shares can be beneficial for long-term wealth creation. Shares typically offer higher returns compared to savings accounts, especially when markets perform well. They also provide portfolio diversification, although they do carry risks due to market volatility.

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