What’s A Share?

  • Nov 16, 2018 AEDT
  • Team Kalkine
What’s A Share?

A share signifies a piece of ownership in the corporation or a financial asset which provides an opportunity to claim an equal share in the profits of the firm and equal obligation in its debt and losses.

For example, if an Investor buys stock in Scentre Group (ASX: SCG), then he owns a small piece of ownership in Scentre. Many of the investors purchase a stock for capital growth, to increase their wealth and protect themselves against inflation. Many of the companies divest its ownership to gain revenue in order to build money or growing businesses.

Let’s say, a retails landlord company, Scentre invests a lot of money via debt and equity channel and accounted market capitalization of about $21.21 Bn (as on November 16, 2018). In order to grow larger in the competitive market, the company needs more capital to get the property, plant and equipment, for strategic investment for acquisitions, and hire more employees. Hence, despite going to borrow money from a bank, the stock comes into play where the company can sell their stake and raise money to fulfill its business objectives.

Basically, there are two types of shares i.e., common shares & preferred shares. Majority of the companies issue common stocks. These stocks have voting rights, holder of these have greater control over the company and get benefit in the form of dividend and capital appreciation. Hence as one acquires more common shares of the company, the ownership in the company will enhance likewise. In comparison with common stock, preference shareholder gets a fixed amount of divided at regular intervals provided the company is earning enough profits, and they typically don’t enjoy the capital appreciation and thus considered less risky when compared with the common stock. Also, in the event of dissolution of the company the preferred shareholder will get the priority over common shareholder in getting the liquidating dividends in case of surplus, however in the case of deficit both kind of shareholders shall be liable up to the amount outstanding w.r.t calls made by the company but hasn’t been paid by the shareholders.

So, the aggregation of all these units combinedly are called issued share capital, it is different from the authorised share capital in the manner that the authorized share capital is the amount of capital that the company’s board may decide to issue. However, this ceiling of authorised capital may be increased by the shareholders by calling a general meeting as & when necessary.

A shareholder may be an Individual or a corporate entity. Being a shareholder, one gets substantial rights such as to vote on critical issues & agendas in the company’s general meeting, receive distributions and also the right to sell it to someone else and enjoy the capital appreciation (if in case it is trading higher than the acquisition price).


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