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What is Stock/Share?
We know the meaning of the word “share”, it refers to a part or portion. When a company wants to raise funds for the growth and development of its business, it presents the ownership or partnership for the investors in the open market. This is called a “share” or “stock.” Vicevarsa when an investor buys the ownership presented by a company, they become a partner/shareholder in that portion of the company.
Example of Stock/Share
Now suppose one day you and your friend decide to start a new business together. In such a case, what you will do first? I think you should decide on the profit-sharing ratio first. This means if the business makes a profit, you and your friend might have agreed to share it in a 50:50 ratio. but what if the company make a loss, I guess it is also shared. This means both of the friends are holding 50:50 shares. This is just an example, the profit-sharing ratio can depend on various other factors, such as work, job in a business, risk taken or investment made.
In simple words, Shares mean the portion that you own a certain percentage of that business.
Let’s assume that the “ABC” named company has presented 100,000 shares in the open market, and you own 1000 shares out of them. This means you own 1% of the share of the “ABC” company. If the company performs well in the future and makes a profit, the value of the company’s shares also increases, benefiting you as well. Resulting in a profit for you.
Why do companies offer shares?
Being a newbie to the stock market, I was also wondering why companies offer shares.
When someone wants to start a new business, he needs a lot of money. There are some ways to raise money, such as taking a loan from a bank or borrowing money from family members, friends or relatives.
Here is a catch, We may or may not get money through all these means. Even if you do not get money through these means, you can still start your business by raising money from somewhere. But still, if you want to expand your business and take it to a larger scale, then you will need more money in the future.
So what do we do in such a situation? If we are confident that our business is good and performing well, then we will go to SEBI (Securities and Exchange Board of India) to register to expand our business. We will register our company and offer shares of our company to the general public or Investors through SEBI by bringing an IPO (Initial Public Offering) to the market.
This shareholding is what is meant by shares. The company fixes the number of shares and price and then people buy the company’s shares in the stock market as an IPO. In this way, money is raised for a newly arriving and growing company.
Difference between Shareholder and Owner
As I have said, the percentage of shares we hold in a company determines the percentage of ownership we have in the company. However, it is important to understand that buying shares in a company does not make us the owner of the company. It only gives us certain rights, such as:
- Participating in the company’s board meetings
- Voting on decisions made at board meetings
- Receiving dividends from the company as a partner
FAQs
What is Stock/Share?
The company presents its ownership or partnership in the open market for investors. This is called a “share” or “stock
Why do companies offer shares?
Companies offer shares to raise capital for various purposes such as expansion, investment in new projects, debt repayment, research and development, and other business activities.
Difference between Shareholder and Owner
A shareholder is someone who holds shares in a company, representing ownership of a portion of the company’s equity. On the other hand, an owner is an individual or entity that has legal ownership and control over the company, including decision-making authority and responsibility for its performance.
