Definition of Shares

This article highlights the concept of shares and why shares are considered as one of the major components of any business.

What is a Share?

You would’ve heard what is the meaning of share? The definition of shares is a series of small parts that are identifiable and, therefore, interchangeable in a firm. A share is an interest in the ownership of a company. The literal share meaning can be likened to owning a particular portion of something. The shares that make up the total ownership of a company are called shares in public companies or stocks in private companies.

It gives one part-owner voting rights and a proportional part of the assets. It is typically configured by its number of shares outstanding (or total number) divided by its number of issued shares outstanding, but there are many other ways to configure them. In essence, a share is just a piece of the company. So, for example, if you own 20 shares of IBM stock, you are entitled to 20% of IBM’s earnings; if you own 500 shares in Apple Inc., then that means that any profits generated by Apple can be split with you.

What are Authorized Shares?

Authorized Shares are the number of shares of common stock that a corporation can legally issue. A corporation may have issued more than its authorized share, in which case its shareholders have limited liability for unpaid amounts. This usually occurs when the corporation has sold preferred stock, classified as capital stock, but does not automatically convert to common stock. A corporation could also sell or declare a dividend worth more than its authorized share; if it does not have enough assets to cover this over-issuance, the directors should seek shareholders’ approval to meet their obligation. As stated above, authorized shares are typically dictated by corporate statutes, and these cannot exceed the limit imposed by these laws to avoid inevitable tax consequences.

What are Issued Shares?

Issued Shares are the number of shares of stock issued to the public. As with Authorized Shares, when a corporation issues more shares than it is authorized to do so, its shareholders will be liable for the difference. It is better to have too many shares than not enough.

The total number of issued shares can be confusing and quite misleading since there may be different counts depending on what was intended. In particular, if one or more classes of stock have been created or re-classified or if a company has no fixed number of outstanding shares (for example, a preferred class), then from one day to the next, you might see different counts for “issued” and “outstanding.” Generally, the issue date (the date to buy stock, usually the first day of trading) and the number of shares outstanding on that date usually refer to the same thing. But where there’s a fixed number of shares, you can have more than one share outstanding on any given day.

Why does a Company issue Shares?

A company issues shares to raise money in exchange for business ownership. It is the most common way to raise capital. Most businesses hope to sell shares at a profit. The price of stocks usually varies with the cost of capital and the company’s earnings. Companies usually issue more than enough authorized shares to raise more money than they need in anticipation that some owners will want to sell them back once profits are made. Shares represent debt to a corporation. A shareholder who buys stock on credit is only entitled to receive cash dividends until their debt has been paid off; if they don’t receive dividends, he must personally pay them out of his pocket.

Conclusion:

Shares are a type of security that signifies ownership in a company. They are usually used to share the profits and assets of the firm. The holders have the right to own a definite number of shares in a business. They can trade their shares, either privately or through stock exchanges, where various brokers buy and sell them on behalf of clients.