Share (finance)

"Shares" redirects here. For other uses, see Share (disambiguation).

Securities

Securities Banknote Bond Debenture Derivative Stock
Markets Stock market Commodity market Foreign exchange market Futures exchange Over-the-counter market (OTC) Spot market
Bonds by coupon Fixed rate bond Floating rate note Inflation-indexed bond Perpetual bond Zero-coupon bond Commercial paper
Bonds by issuer Corporate bond Government bond Municipal bond Pfandbrief
Equities (stocks) Stock Share Initial public offering (IPO) Short selling
Investment funds Mutual fund Closed-end fund Exchange-traded fund (ETF) Hedge fund Index fund Segregated fund
Structured finance Securitization Agency security Asset-backed security Mortgage-backed security Commercial mortgage-backed security Residential mortgage-backed security Tranche Collateralized debt obligation Collateralized fund obligation Collateralized mortgage obligation Credit-linked note Unsecured debt
Derivatives Forward Futures Option Swap Warrant Credit derivative Hybrid security

In financial markets, 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]

Corporations issue shares which are offered for sale to raise share capital. The owner of shares in the corporation is a shareholder (or stockholder) of the corporation.^[2] 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,^[3] which may not reflect the market value of those shares.

The income received from the ownership of shares is a dividend. The process of purchasing and selling shares often involves going through a stockbroker as a middle man.^[4]

Valuation

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.

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 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, 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]

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, a securities depository.

References

↑ "Shares Definition". Investopedia. Retrieved 9 July 2013.
↑ Hoang, Paul (2007). "1.4 Stakeholders". Business and Management. Victoria: IBID Press. p. 71. ISBN 1-876659-63-7.
↑ "Chapter 22 Company-An Introduction" (PDF). Accountancy. Noida, Uttar Pradesh, India: National Institute of Open Schooling. 2008. p. 242. Retrieved 24 August 2011.
↑ "How to Buy Shares". ShareWorld. Retrieved 23 February 2012.
↑ "All about shares and tax". Rediff India Abroad. 16 January 2006. Retrieved 23 February 2012.

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