Shares

What is a share?

A share is a unit of ownership in a company, which can be offered for sale to investors.

The overall value of the company is divided up into units of equal size. Each unit is known as a share. To put this into context, if a company is worth $200 million and issues 100 million shares, each share is worth $2 – or 200 cents.

As the value of the company fluctuates, so does its share price. So investors who buy shares in a company are hoping it will grow in value, enabling them to sell the shares at a higher price.

Shares are also known as stocks. They are a type of asset or equity.

Why do companies offer shares?

By ‘floating’ their company on a stock exchange – allowing investors to buy shares and therefore own a portion of the business – the management are able to raise capital to put back into the company.

If this money is applied wisely for expansion and improvement, it should boost the share price. So the company and its investors are heavily reliant upon each other.

Flotation is also a way for a business owner to realise a profit, particularly if they have built the company from scratch. The drawback is that they have to give up their sole control of the business, becoming answerable to shareholders.