In the article, we will explore the fundamental concept of shares and what it means of owning a share of a company.

This article aims to provide a comprehensive understanding of shares, why companies divide their capital into shares and the types of companies that utilize this concept.

let’s first understand What is a share? “शेयर क्या होता है?

Contents

What is a Share?

A share is the smallest fractional part or unit of a company’s capital. In the context of the stock market, a share represents ownership in a specific company.

Yes, For instance, if we consider a company named ABC with a total capital of ₹100, each division of this capital into 100 different parts would be termed a share.

Therefore, ABC company would have a total of 100 shares, with each share priced at ₹1. The ownership of shares determines an individual’s stake in the company.

What is Stock?

1 stock is equal to 1 share. In the stock market, the terms “stock” and “share” are often used interchangeably to refer to the ownership interest in a company.

Therefore, when someone holds 1 stock, it means they own 1 share of that particular company’s stock.

What’s the Meaning of Ownership Percentage and Shareholding?

The number of shares an individual possesses directly corresponds to their ownership percentage in a company.
you might not get this. right? let’s understand with an example

For example, if Mr. X acquires 5 shares of ABC Company, he becomes the owner of 5% of the company.

Similarly, if someone holds 50 shares out of 100 in ABC Company, they would own 50% of the company.

However, it’s important to note that in larger companies like Reliance, the number of shares can be significantly higher, often reaching millions or billions. This means that acquiring even 1% ownership in such companies could require investing substantial sums of money.

Why do Companies Divide Capital into Shares?

Companies divide their capital into shares primarily to raise funds for business expansion at national and international levels.

This practice enables companies to gather large amounts of capital from the general public, effectively making them partners in the company’s growth. By selling shares to the public, companies can generate substantial capital and utilize these funds to further their business objectives.

The movie “Guru” provides a notable example of this strategy, where the protagonist plans to make people stakeholders in his company by offering them shares for a minimal price.

This approach allows the company to tap into the financial resources of numerous individuals, resulting in significant capital accumulation.

Types of Companies and Shares

The concept of shares is commonly observed in certain types of companies. In general, shares are not prevalent in sole proprietorships or small businesses.

However, they play a vital role in partnership businesses, private limited companies, and public limited companies.

Sole Proprietorship Business: In a sole proprietorship, a single individual owns the entire business and is solely responsible for its profits and losses. Since there is only one owner, dividing the capital into shares is unnecessary.
Partnership Business: Partnership businesses involve two or more owners who share the capital and profits in predetermined ratios. Each partner’s ownership is determined based on their capital contribution.

For example, if two partners equally invest in a partnership business, they each own 50% of the shares.

Private Limited Company: Similar to a partnership business, a private limited company (PVT ltd.) has at least two owners. The capital is divided into shares, and the profit and loss distribution is predetermined.

For instance, if two individuals equally invest in a private limited company, they would each own 50% of the shares.

Public Limited Company: Public limited companies have a minimum of seven owners, and there is no upper limit to the number of owners. The public can purchase shares of these companies, allowing them to become stakeholders. Public limited companies often have millions or billions of shares.

I hope you now understand what owning a share means in the stock market. Types of companies and shares

Summary

Shares represent the smallest units of ownership in a company.

They are instrumental in raising capital and enabling the growth of businesses. While shares are not prevalent in sole proprietorships or small businesses, they play a significant role in partnership businesses, private limited companies, and public limited companies.

By dividing their capital into shares, companies can attract investment from the public and expand their operations.

Understanding the concept of shares is essential for beginners in the stock market, as it forms the foundation of investment and ownership in various companies.