What Are Shares?
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A share represents a small piece of ownership or a partnership in a company. It signifies a stake in the company, meaning the more shares you own, the larger your portion of ownership. Here's a breakdown of what shares are:
• Ownership Stake
◦ When a company is formed, it is divided into smaller units, and these units are called shares.
◦ For example, if Mr. X and Mr. Y started a company with ₹1 crore, they divided it into 10 lakh shares, each with a face value of ₹10.
◦ Similarly, a person with a tea business who needs capital invites the public to become owners of small parts of his company by contributing money, and in return, they receive shares.
◦ By purchasing shares, you become a part-owner of that company.• Face Value
◦ The face value is the initial price of a share when a new company is created.
◦ Typically, this amount is ₹10 per share.
◦ This tells you the price of one share at the time the company was formed, even if the share price changes later.• Purpose and Function
◦ The system of shares allows companies to easily bring in new partners or investors. For instance, if Mr. X and Mr. Y need a third or fourth partner, shares provide a system to make new people partners.
◦ Shares also simplify understanding who owns the company and its value, and make it easier for people to invest.
◦ In the past, share certificates were kept in physical form, but today shares are held electronically in Demat accounts.• Buying and Selling
◦ You can only buy a company's shares once it has offered or is offering its shares in the stock market.
◦ Companies typically bring their shares to the stock market through an Initial Public Offering (IPO).
◦ The buying and selling of these shares occurs in the stock market.