How Do Shares Work?

Stock Shares are Units of Company Ownership

In personal finance and investing, the term share is used to describe a small equity share of a company that has made a stock offering to the public. A share of stock is essentially a tiny piece of ownership in the company that issued it. The total value of a public company should be closely reflected by the total value of all of its stock. Because a shareholder is a part owner in a company, she's often entitled to income when the company does well and is paid a dividend from her share holdings. The value of stock shares increase and decrease over time, depending on the performance of the company and demand for the company's stock from other investors.

Buying and Selling Shares

Making money on the stock market is a matter of buying stock shares in a company in the hopes that the company performs well over time, which will increase the value of the shares. Generally, shares of stock must be bought and sold through an intermediary known as a broker, who takes stock orders and buys them on an investor's behalf. Discount brokers, such as online services that charge small fees for stock trades, are a popular way to buy and sell shares of stock. Although the average person usually invests in the stock market for the long term, hoping that company shares will grow over time, many professional investors buy and sell shares constantly--sometimes even during the same day. This is because share values are determined by demand for the shares, which may or may not completely reflect the actual performance of the underlying company. If there's a rumor that a certain company is going to fail, that company's shares might drop in value while the rumor spreads--even if it turns out to be false. Long-term investing is normally the best way to avoid such artificial and sporadic fluctuations.

Other Considerations

Apart from being entitled to income from a share of stock and the potential for profit if the share value goes up, shareholders receive a number of other benefits. For one, shareholders are entitled to receive periodic updates as to the performance of the company, and may be invited to special shareholder events. If a single investor holds a significant portion of shares, he may be granted a leadership role in the company such as a voting position on the board of directors of the company. Although shares of stock conjure images of equity shares freely traded on the stock market, companies can also be privately held--meaning shares of stock are bought by a limited number of large, private investors. Buying shares of a privately held company usually isn't possible unless one has significant assets or close internal ties to the company.