What is a share?
A share is a security that represents ownership of a part of a company. This entitles the owners of the share to a share in the assets and profits of the stock corporation that corresponds to the share they own.
Shares are predominantly bought and sold on the stock exchange, although there may also be private sales, and are the basis of many individual investors’ portfolios. Transactions must adhere to government regulations designed to protect investors from fraudulent practices. Historically, equities have outperformed most other investments over the long term. Equity investments are very different from real estate investments. Just as with real estate investments, it is worth consulting an independent expert, such as anasset manager, before investing in shares.
What are shares?
Corporations issue (sell) shares to raise funds for the operation of their companies. The holders of shares(shareholders) have thus acquired a stake in the company and, depending on the type of shares held, are entitled to a portion of the assets and earnings. In other words, a shareholder is therefore the owner of the issuing company. Ownership is determined by the number of shares a person owns in relation to the number of shares issued. For example, if a company has 100 shares outstanding and one person owns 5 shares, that person owns and is entitled to 5% of the company’s assets and earnings.
Shareholders do not own corporations; they own shares issued by corporations. But corporations are a special form of organization because the law treats them as legal entities. In other words, corporations pay taxes, can borrow money, can own property, can be sued, etc. The idea that a corporation is a “person” implies that the corporation owns its own assets. A corporate office full of chairs and desks belongs to the corporation, not the shareholders.
This distinction is important because the property of the corporation is legally separate from the property of the shareholders, which limits the liability of both the corporation and the shareholder. If the corporation goes bankrupt, a judge can order all of its assets to be sold – but a shareholder’s personal assets are not at risk. The court cannot even force you to sell your shares, even though the value of your shares has fallen dramatically. Similarly, if a major shareholder goes bankrupt, she cannot sell the assets of the corporation to satisfy her creditors. The assets of the shareholders and the corporation must therefore be kept strictly separate.
Shareholder capital participation
What shareholders actually own are shares issued by the company; and the company owns the assets held by a company. So if you own 33% of the shares of a company, it is not correct to say that you own one-third of that company; instead, it is correct to say that you own 100% of one-third of the shares of the company. Shareholders cannot do with a company or its assets as they please. A shareholder cannot walk out with a chair because the company owns that chair, not the shareholder. This is known as the separation of ownership and control.
Owning shares gives you the right to vote at shareholder meetings, to receivedividends (the company’s profits ) when they are distributed, and it gives you the right to sell your shares to someone else.
If you own the majority of shares, your voting rights increase, so you can indirectly control the management of a company by appointing the board of directors. This is most evident when one company buys out another: The acquiring company doesn’t go around buying up the building, the chairs and the employees; it buys up all the shares. The board is responsible for increasing the value of the company and often does this by hiring professional managers or senior executives, such as the Chief Executive Officer (CEO).
Most ordinary shareholders do not aspire to run the company. Much more important to them is the right to a share of the company’s profits, which, as we will see, is the basis for the value of a share. The more shares you own, the greater the share of the profits you receive. However, many companies do not pay out dividends, but reinvest the profits back into the growth of the company. However, these retained earnings are still reflected in the value of a share. However, it is important to understand that the value of a share does not always correspond to the price of a share. It is therefore important that a financial professional such as a good asset manager should be able to advise you on whether a share is currently expensive or cheap in relation to its value.
How do you buy a share?
Shares are usually bought and sold onstock exchanges, such as the Swiss Stock Exchange (SIX). After a company goes public through an Initial Public Offering (IPO), its shares are offered for investors to buy and sell on an exchange. Typically, investors use a brokerage account to buy shares on the exchange, which then lists the purchase price (the bid) or the sale price (the offer). The price of the share is influenced by factors such as supply and demand in the market.
What is the difference between shares and bonds?
If a company raises capital by issuing shares, these entitle the holder to a share in the ownership of the company. In contrast, when a company raises capital through the sale of bonds, these bonds represent a loan from the holder of the bond to the company. Bonds have terms that obligate the company or entity to repay the principal along with interest in exchange for this loan. In addition, bondholders are given priority over shareholders in the event of bankruptcy, while shareholders are usually last in line in terms of claim to assets in the event of bankruptcy.