What is a Share of Stock? Ownership Explained

When you hear someone say they own stock in a company, they mean they own shares. But what exactly is a share? In this guide, we explain what stock ownership really means and what rights you get as a shareholder.

A Share is a Piece of Ownership

A share of stock represents a tiny piece of ownership in a company. When a company issues stock, they are dividing the ownership of the company into small pieces that can be bought and sold.

Real companies work the same way, just with much larger numbers. Apple, for example, has about 15 billion shares outstanding. When you buy one share of Apple, you own a tiny fraction of the company.

Why Companies Issue Shares

Companies issue shares to raise money. Instead of borrowing from a bank, they can sell ownership to investors. This money helps them grow, build new products, hire employees, or expand into new markets.

When a private company first sells shares to the public, it is called an Initial Public Offering (IPO). After the IPO, shares trade freely between investors on the stock market.

What Owning Shares Gives You

When you own shares of a company, you get several rights as a shareholder:

1. Ownership Stake

You literally own part of the company. Your ownership percentage equals your shares divided by total shares outstanding. If a company has 1 million shares and you own 100, you own 0.01% of the company.

2. Voting Rights

Most common shares give you the right to vote on company matters. This includes electing the board of directors and voting on major decisions like mergers. You typically get one vote per share.

3. Dividend Payments

If the company pays dividends, you receive your share. Dividends are cash payments made to shareholders from company profits. Not all companies pay dividends, but many established companies do.

4. Claim on Assets

If the company is sold or goes out of business, shareholders have a claim on the assets after debts are paid. Common shareholders are last in line after bondholders and preferred shareholders.

5. Right to Sell

You can sell your shares anytime the market is open. This liquidity is one of the biggest advantages of owning publicly traded stocks.

Shares Outstanding vs Market Cap

Two important terms related to shares:

Shares Outstanding: The total number of shares that exist for a company. This includes shares held by all investors, company insiders, and institutions.

Market Capitalization (Market Cap): The total value of all shares. You calculate it by multiplying the share price by shares outstanding.

Market cap helps you understand company size:

• Large-cap: $10 billion or more (Apple, Microsoft)
• Mid-cap: $2 billion to $10 billion
• Small-cap: $300 million to $2 billion
• Micro-cap: Less than $300 million

Share Price Does Not Equal Value

A common mistake is thinking a $500 stock is "expensive" and a $5 stock is "cheap." The share price alone tells you nothing about whether a stock is a good value.

Companies can have different share prices simply because they chose to divide ownership into different numbers of shares. A company worth $10 billion could have:

• 10 million shares at $1,000 each, or
• 1 billion shares at $10 each

Either way, the company is worth the same $10 billion.

Stock Splits

Sometimes companies do stock splits to change their share price. In a 2-for-1 split, you get twice as many shares, but each is worth half as much. Your total value stays the same.

Companies split their stock to make shares more affordable for small investors and to increase trading activity.

Fractional Shares

Traditionally, you had to buy whole shares. If a stock cost $1,000 per share, you needed $1,000 to invest. Today, many brokers offer fractional shares, letting you buy a portion of a share.

With fractional shares, you can invest $50 in a $1,000 stock and own 0.05 shares. This makes expensive stocks accessible to everyone, regardless of how much money you have.

What Happens When You Buy

When you buy shares through your broker, here is what actually happens:

• You place an order through your brokerage account
• Your broker sends the order to a stock exchange
• The exchange matches your buy order with someone's sell order
• The trade executes at an agreed price
• The shares are transferred to your account (usually in 1-2 days)
• You are now a shareholder of that company

The entire process happens in seconds, even though the official "settlement" takes a couple of days.

Your Rights as a Shareholder

As a shareholder, you can:

• Vote at shareholder meetings (or by proxy)
• Receive annual reports and financial statements
• Attend the annual shareholder meeting
• Receive dividends if the company pays them
• Sell your shares whenever you want
• Sue the company if management violates their duties

As a small shareholder, your individual vote does not have much impact. But you still have the same rights per share as any other investor.

The Risks of Ownership

Owning shares comes with risks:

• Price can drop: You can lose money if the stock price falls
• Company can fail: If the company goes bankrupt, your shares may become worthless
• No guaranteed returns: Unlike bonds, there is no promise of income
• Last in line: If the company fails, shareholders get paid after everyone else

Summary

A share of stock is a piece of ownership in a company. When you buy shares, you become a part owner with rights to vote, receive dividends, and share in the company's success. Share price alone does not tell you if a stock is cheap or expensive. Focus on what the company is worth relative to its earnings and growth, not just the price per share.

Want to learn more? Discover how stocks make money or understand the difference between common and preferred stock.