What Is a Share?

Imagine a company as a large cake. The entire cake represents the whole business. The company can

divide this ownership into many equal units. Each unit is called a share.

If a company has 10 lakh shares and you own 10,000 of them, you own 1% of the company.

The calculation is simple: Ownership percentage = Shares you own / Total shares outstanding x 100.

In practice, listed companies may have crores or even hundreds of crores of shares. A normal retail

shareholder usually owns only a very small fraction of the company.

When you buy a share, you become an owner, not a lender.

If you lend money to a company through a bond or loan, the company owes you repayment according to

agreed terms. When you buy equity shares, there is no fixed promise that the company will repay your

purchase price.

Your return depends on how the business performs, how the market values it and whether the company

distributes dividends.

This is why shares can create substantial wealth, but also carry risk.

Owing shares does not mean you can walk into the company's factory and claim a machine or desk. The

company is a separate legal entity and owns its assets.

As a shareholder, you own a proportional economic interest in the company. Your claim is on the value

created by the entire business after obligations such as employee costs, taxes and debt are considered.

If the company grows and becomes more profitable, the market may value your ownership more highly. If

the company struggles, the value of your ownership may decline.

A person or organisation that owns shares in a company is called a shareholder.

Shareholders can include company founders, promoters, individual investors, mutual funds, insurance

companies, foreign institutions, pension funds, employees and other companies.

Shareholders may hold shares for a few days, several months or many years. The legal nature of the

ownership remains the same, although the purpose and timeframe may differ.

A company may need capital to start operations, build factories, launch products, enter new markets,

acquire another business, repay debt or invest in technology.

Instead of borrowing all the money, the company can raise equity capital by selling ownership units.

By issuing shares, the company receives capital. In exchange, the original owners give up a portion of

ownership to new shareholders.

This process allows many investors to collectively fund the growth of a business.

Suppose Bright Tools Ltd has 1 crore shares outstanding.

An investor purchases 1 lakh shares.

The investor's ownership is 1,00,000 / 1,00,00,000 = 1%.

If the company later issues additional shares, the investor may own a smaller percentage unless they also

acquire more shares. This reduction in ownership percentage is called dilution.

Shares outstanding are the shares currently held by all shareholders, including promoters, institutions and

the public.

This number is important because it is used to calculate ownership percentages, earnings per share and

market capitalisation.

Shares outstanding may change when a company issues new shares, buys back shares, converts securities

into equity, or completes certain corporate actions.

Authorised shares

The maximum number of shares the company is legally permitted to issue under its corporate documents.

Issued shares

The number of shares the company has actually created and issued to shareholders.

Outstanding shares

The issued shares currently held by shareholders, excluding shares that may have been bought back and

held as treasury shares where applicable.

For a beginner, shares outstanding is usually the most useful number because it represents the ownership

units currently in circulation.

Equity shareholders may receive certain rights, subject to the type of share and applicable company law.

These rights do not guarantee profit, and they may vary between companies and share classes.

Many equity shares carry voting rights. Shareholders may vote on matters such as the appointment of

directors, major corporate decisions and other resolutions placed before them.

A shareholder with more voting shares generally has greater influence. However, a small retail shareholder

usually has limited individual influence because their ownership percentage is tiny.

Voting rights still matter because they are part of the legal structure of ownership.

A dividend is a portion of profit that a company chooses to distribute to shareholders.

Dividends are not guaranteed. A profitable company may retain earnings to fund growth instead of

distributing them.

If a company declares a dividend of Rs 5 per share and you own 100 shares, the gross dividend amount is

Rs 500, subject to applicable taxation and rules.

A stock should not be purchased only because it recently declared a dividend. The share price and the

overall quality of the business still matter.

Shareholders may benefit when the market price of their shares rises.

If you buy a share at Rs 500 and later sell it at Rs 650, the difference is a capital gain before costs and

taxes.

The price may rise because the business grows, profits improve, expectations increase, demand

strengthens or broader market conditions become favourable.

The reverse is also possible. If you sell below your purchase price, you incur a capital loss.

For ordinary shareholders of a limited company, liability is generally limited to the amount invested in the

shares.

If the company fails, a shareholder normally does not have to personally repay the company's debts merely

because they own shares.

However, the value of the shares can fall significantly or even become nearly worthless.

Face value is an accounting and legal value assigned to a share by the company. It may be Rs 1, Rs 2, Rs

5, Rs 10 or another amount.

Face value is used in parts of the company's capital structure and for certain corporate calculations. It does

not tell you what the share is worth in the stock market.

A share with a face value of Rs 10 may trade at Rs 150, Rs 1,500 or another market price.

Market price is the current price at which buyers and sellers are willing to trade the share on an exchange.

It changes continuously during market hours due to demand, supply, expectations and new information.

Face value is decided within the company's capital structure. Market price is discovered in the market. They

are completely different concepts.

cheap

Beginners often assume that a Rs 20 share is cheaper than a Rs 2,000 share. This is incorrect because the

number of shares outstanding can be very different.

To understand the market's total valuation of a company, we use market capitalisation.

Market capitalisation = Market price per share x Total shares outstanding.

Example: comparing two companies

Company

Share price

Shares

outstanding

Company A

Rs 20

Company B

Rs 2,000

100 crore

50 lakh

Market

capitalisation

Observation

Rs 2,000 crore

Lower share price

Rs 1,000 crore

Higher share price

but smaller

company value

Company B has a much higher share price, yet its total market value is lower. Therefore, share price alone

cannot tell you whether a company is cheap or expensive.

A stock split increases the number of shares while reducing the price per share proportionately.

Suppose you own 10 shares priced at Rs 1,000 each. Your total holding value is Rs 10,000. In a 1:10 split,

each old share may become 10 new shares. You would then own 100 shares priced around Rs 100 each,

assuming no other market movement.

Your percentage ownership and total value do not automatically increase merely because of the split.

A split changes the number and unit price of shares, not the underlying business value.

In a bonus issue, a company distributes additional shares to existing shareholders in a specified ratio.

For example, in a 1:1 bonus issue, a shareholder may receive one additional share for every share already

owned.

The market price generally adjusts to reflect the increased number of shares. A bonus issue does not create

free wealth by itself.

Dilution occurs when a company issues additional shares and an existing shareholder's percentage

ownership decreases.

Suppose a company has 100 shares and you own 10, giving you 10% ownership. If the company issues

another 100 shares and you do not buy any, you still own 10 shares but now own only 5% of the 200 shares.

Dilution is not always bad. A company may issue shares to raise capital for productive growth. The important

question is whether the capital raised creates sufficient value.

Most exchange-traded shares discussed by retail participants are equity shares.

Equity shareholders generally participate in business growth and may have voting rights. Their dividends are

not fixed.

Preference shares may have priority over equity shares for dividends or repayment in certain circumstances,

but usually have different rights and characteristics.

For this beginner curriculum, the word share will normally refer to ordinary equity shares unless stated

otherwise.

One major feature of listed shares is transferability. An owner can sell shares to another participant through

the stock exchange, subject to liquidity and market rules.

This does not mean a seller is guaranteed the desired price. A trade requires a willing buyer at an

acceptable price.

Highly liquid shares usually have many buyers and sellers. Illiquid shares may be difficult to trade without

affecting the price.

No. Control depends on the percentage of voting ownership and the distribution of shares among other

shareholders.

A promoter group owning 55% may effectively control major decisions. A retail investor owning 20 shares

owns a legitimate part of the company but has almost no practical control.

Ownership is real, but the degree of influence varies.

No. A company's profit belongs economically to shareholders, but management and the board decide how

much is retained and how much may be distributed, subject to law and company policy.

Retained profit may be used for expansion, research, acquisitions, debt reduction or reserves.

A company can be profitable without paying a dividend, and a company may sometimes pay a dividend

despite weak recent growth. Dividends must be evaluated in context.

If a company is liquidated, its assets are used to settle obligations according to legal priority.

Employees, secured creditors, lenders, tax authorities and other claimants may rank ahead of ordinary

equity shareholders.

Equity shareholders are residual owners. They receive value only after higher-priority claims are satisfied. In

a failure, there may be little or nothing left for them.

This is one reason equity ownership carries risk.

Suppose Green Energy Ltd has 5 crore shares outstanding. Its market price is Rs 200 per share. You buy

500 shares.

 Your invested amount before charges is Rs 1,00,000.

 Your ownership percentage is 500 / 5,00,00,000 x 100 = 0.001%.







 Your number of shares remains 500 unless you buy or sell, but their market value changes.

The company's market capitalisation is Rs 200 x 5 crore = Rs 1,000 crore.

If the market price rises to Rs 240, your holding is worth Rs 1,20,000 before costs and taxes.

If the price falls to Rs 160, your holding is worth Rs 80,000.

Question: What does one share represent?

Answer: One unit of ownership in a company.

Question: If you own 1 lakh shares out of 1 crore outstanding shares, what percentage do you own?

Answer: 1%.

Question: Is face value the same as market price?

Answer: No. Face value is an accounting/legal value; market price is determined by buyers and sellers.

Question: Does a low share price mean a company is cheap?

Answer: No. You must also consider shares outstanding, company value and other factors.

Question: What is market capitalisation?

Answer: Market price per share multiplied by total shares outstanding.

Question: Are dividends guaranteed?

Answer: No. The company may retain profits or may not have sufficient distributable profit.

Question: Does a stock split automatically increase wealth?

Answer: No. The number of shares rises and the price adjusts proportionately.

Why Do Companies Issue Shares? The next lesson will explain why businesses raise equity capital, how

ownership is exchanged for funding, and the advantages and disadvantages of issuing shares.