Companies and Shares
When you buy a stock, you're buying a small piece of a company. Let's understand what that really means.
A share represents ownership. If a company has 1,000 shares and you own 10, you own 1% of the company.
What is a Company?
A company is a legal entity that conducts business. It can be a small shop selling tea or a massive corporation like Reliance or TCS. Companies exist to:
- Sell products or services
- Generate profit for their owners
- Create value over time
From Private to Public
Most companies start as private companies. The founders and early investors own all the shares. When a company wants to raise money from the general public, it becomes a public company through an IPO (Initial Public Offering).
Once public, anyone can buy shares of the company on a stock exchange.
What is a Share?
A share is a unit of ownership in a company. When you own shares, you become a shareholder – a part-owner of that company.
Rights of a Shareholder
| Right | What it Means |
|---|---|
| Voting Rights | You can vote on major company decisions |
| Dividends | You receive a portion of company profits |
| Capital Gains | You profit if the share price increases |
| Annual Reports | You receive updates on company performance |
Dividends are like a "thank you" payment from the company. Not all companies pay dividends – some prefer to reinvest all profits back into the business.
Why Companies Issue Shares
Companies sell shares to raise money for:
- Expansion – Opening new factories, stores, or offices
- Research – Developing new products or technology
- Debt Repayment – Paying off loans
- Acquisitions – Buying other companies
When you buy a share, you're essentially funding the company's growth in exchange for a piece of future profits.
Face Value vs Market Value
Every share has two values:
- Face Value – The original value assigned when the share was created (often ₹1 or ₹10)
- Market Value – The current trading price on the stock exchange
The market value is what matters for your investment. It's determined by supply and demand from buyers and sellers.
The face value rarely changes, but market value fluctuates every second during trading hours based on what investors are willing to pay.
Key Takeaways
- A stock represents partial ownership in a company
- Shareholders have rights including voting and dividends
- Companies issue shares to raise money for growth
- Market value is what you pay; face value is just for bookkeeping
Next: How are these shares traded? Let's explore stock exchanges.
Sources & Disclaimer
- SEBI Investor Education Guidelines (investor.sebi.gov.in)
- NSE Pathshala - Financial Literacy Program
Note: Any benchmarks (e.g., "Good ROE is > 20%", or specific P/E ranges) are simplified industry heuristics for educational purposes. True evaluation depends on specific industry context, market cycles, and individual company circumstances.