financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial ma ...

, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...

limited partnership A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...

s, and real estate investment trusts. Share capital refers to all of the shares of an enterprise. The owner of shares in a company is a

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal o ...

(or

stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...

holder) of the

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...

. A share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares. The income received from the ownership of shares is a

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-i ...

. There are different types of shares such as equity shares, preference shares, deferred shares, redeemable shares, bonus shares, right shares, and employee stock option plan shares.

Valuation

Shares are valued according to the 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. A minority discount is usually applied when valuing a minority shareholding (less than 50%), where ownership of the shares offers limited control over the business if this is held by a majority shareholder.

Terminology

* Shares outstanding are those that are authorized by the government, issued by the company, and held by third parties. The number of shares outstanding times the share price gives the

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

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

Tax treatment of dividends varies between tax jurisdictions. For instance, in

India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...

, dividends are tax free in the hands of the shareholder up to INR 1 million, but the company paying the dividend has to pay dividend distribution tax at 12.5%. There is also the concept of a deemed

, which is not tax free. Further, Indian tax laws include provisions to stop dividend stripping.

Share certificates

Historically, investors were given share 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 or DTCC, a central securities depository.

References

External links