Share (finance)

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In financial markets, a share is a unit of account for various investments. It often means the stock of a corporation, but is also used for collective investments such as mutual funds, limited partnerships, and real estate investment trusts.[1]

A corporation divides its capital into shares, which are offered for sale to raise capital, termed as issuing shares. Thus, a share is an indivisible unit of capital, expressing the contractual relationship between the company and the shareholder. The denominated value of a share is its face value: the total capital of a company is divided into a number of shares.[2]

The income received from shares is known as a dividend. A shareholder, also known as a stockholder, is a person who owns shares of a certain company or organization.[3] The process of purchasing and selling shares often involves going through a stockbroker as a middle man.[4]

Valuation[edit]

Shares are valued according to various principles in different markets, 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 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.

Concept of Share In practical terms, shares are individual pieces representing an equal stake in the capital of a business organization. The number of shares make the respective holder eligible to receive a certain part of the profits made by that company. The shares also help the respective holders to be able to lay claim to a part of the worth of the specific company. This is applicable, however, only when there is liquidation.

Definition of Share According to financial terminology the share is regarded as a unit of account that can represent several monetary instruments, such as stocks, REITs, mutual funds, or limited partnerships. In Great Britain the term "shares" usually refers to stocks.

Dividend The earning that the holder of a share makes from his or her shares is called the dividend. An earning amongst held shares is only possible by the company making a profit. Dividends are actually part of the profits of the company whose shares may be held by the respective holder. These are non-reinvested profits..

Terminology[edit]

  • Shares outstanding are those that are authorized, issued, and held by third parties. The number of shares outstanding times the share price gives the market capitalization of the company, which if the trading price held constant would be sufficient to purchase the company.
  • Treasury shares are authorized, issued, and held by the company itself.
  • Issued shares is the sum of shares outstanding and treasury shares.
  • Shares authorized include both issued (by the Board of Directors or shareholders) and unissued but authorized by the company's constitutional documents.

Tax treatment[edit]

Tax treatment of dividends varies from territories to territories. For instance, in India, dividends are tax free in the hands of the shareholder, but the company paying the dividend has to pay dividend distribution tax at 12.5%. There is also the concept of a deemed dividend, which is not tax free. Further, Indian tax laws include provisions to stop dividend stripping.[5][citation needed]

Stock certificates[edit]

Historically, investors were given stock certificates 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.

See also[edit]

References[edit]

  1. ^ "Shares Definition". Investopedia. Retrieved 2013-07-09. 
  2. ^ "Chapter 22 Company-An Introduction". Accountancy. Noida, Uttar Pradesh, India: National Institute of Open Schooling. 2008. p. 242. Retrieved 24 August 2011. 
  3. ^ Hoang, Paul (2007). "1.4 Stakeholders". Business and Management. Victoria: IBID Press. p. 71. ISBN 1-876659-63-7. 
  4. ^ "How to Buy Shares". ShareWorld. Retrieved 23 February 2012. 
  5. ^ "All about shares and tax". Rediff India Abroad. 16 January 2006. Retrieved 23 February 2012.