Shares are the units that represent ownership in a company. Hold one and you own a slice of the business, with a claim on its profits and assets after creditors. Shares are issued by the company and then bought and sold on markets at live prices.
Most ordinary shares come with two main features: the chance to receive dividends and the right to vote on company matters. Shareholders have limited liability, which means the most you can lose is what you invested.
Ordinary, preference and other share classes
Not every share is the same. Companies can issue different classes with different rights. The label varies by jurisdiction and the company’s articles, but the broad ideas are common.
- Ordinary shares: The standard equity. They usually carry voting rights and the potential for dividends that rise or fall with profits.
- Preference shares: Often get a fixed dividend and priority over ordinary shares for income and on winding up, but they may have limited or no voting rights. Their market behaviour can look more bond-like.
- Non-voting or restricted-vote shares: Economic rights without, or with fewer, votes. Frequently used in dual-class structures so founders keep control.
- Redeemable or convertible shares: Can be bought back by the company on set terms, or converted into another class.
The exact rights, such as dividend priority, conversion ratios or voting caps, are set in the company’s constitutional documents. Depositary receipts are another wrapper investors may see. These are certificates that represent shares listed in another market, with their own terms around voting and dividends.
Where shares come from and how they trade
Shares start life in the primary market when a company issues them to raise capital, for example in an initial public offering or a later fundraise. After that, they change hands between investors in the secondary market on exchanges or other venues. Prices are set by bids and offers meeting in the market, so the share price moves continually with news, expectations and supply and demand.
Trading is handled through brokers and venues using electronic order books and market makers. Orders can be placed with conditions around price and size, and they may fill in pieces if liquidity is thin. Settlement cycles vary by market and can change, so cash and shares do not always switch ownership on trade date. Some brokers also offer fractional shares, but availability and the exact mechanics vary by provider.
Share counts that matter: issued, outstanding and free float
Several share counts shape how investors read a company.
- Authorised: The maximum number the company can issue under its rules. Not all jurisdictions use this concept in the same way.
- Issued: Shares the company has created and sold to investors at any time since formation.
- Treasury: Issued shares the company has repurchased and holds itself. They do not usually receive dividends or votes.
- Outstanding: Issued minus treasury. This is the number used for ownership percentages, dividends per share and many ratios.
- Free float: The portion of outstanding shares available for public trading. Large strategic stakes and locked-up holdings are often excluded. Free float shapes liquidity and how indices weight the stock.
Keep an eye on these numbers in the notes to the accounts or regulatory filings. They can shift through new issues, buybacks, conversions or employee share schemes, changing both your percentage stake and per share figures such as earnings per share.
Corporate actions that affect your stake
Companies regularly take actions that change the number of shares you hold or what they are worth, even if your percentage ownership is similar afterwards.
- Stock split or consolidation: A 2-for-1 split doubles your share count and halves the price per share, leaving the overall value the same at that moment. A consolidation, or reverse split, does the opposite.
- Bonus or scrip issue: New shares are issued to existing holders for free or in place of cash dividends. Your slice of the company is broadly unchanged at issue.
- Rights issue: Existing shareholders get the right to buy new shares, usually at a discount and in proportion to their holding. Taking up your rights helps maintain your percentage ownership. You can often sell the rights instead.
- Dividends: Cash payments or additional shares funded from profits or reserves. Timing and level are at the board’s discretion and can be suspended.
- Share buybacks: The company repurchases its own shares and may cancel them or hold them in treasury. Fewer shares outstanding can lift per share figures, although cash leaves the business.
- Mergers, spin-offs and schemes: Your shares can be swapped for another company’s shares or split into two holdings if a division is demerged.
These actions are announced in formal company communications and, for listed firms, through market news services. If an action needs your vote, it will be put to a general meeting. Corporate action details and timings vary by jurisdiction and by the company’s rules.
What shareholders can receive and control
Owning shares gives you economic and governance rights, subject to the class you hold.
- Dividends: Periodic distributions, usually from profits. If declared, you are entitled per share on the record date. Payment options can include cash or new shares. Tax treatment varies by country and can change.
- Votes: The ability to vote on directors, pay policies, major transactions and other resolutions at the AGM or EGM. If you hold through a broker’s nominee, you’ll usually vote by instruction rather than attending in person.
- Information: Access to reports, audited accounts and notices. Public companies must publish regular updates.
- Residual claim: After creditors and preference shareholders, ordinary shareholders stand last in line for assets if the company is wound up.
Some shares have pre-emption rights, letting you maintain your stake when new shares are issued, but terms differ by market and can be disapplied with shareholder approval.
Market cap and per share metrics
A company’s market capitalisation is the share price multiplied by shares outstanding. It is a snapshot of what the market is currently willing to pay for the equity. Analysts then build per share measures from the financial statements, such as earnings per share, dividends per share and book value per share, to compare companies of different sizes. Ratios like the price to earnings, price to book and dividend yield all spring from these building blocks.
Small example: say you buy 200 shares at £5. Your outlay is £1,000 plus any fees. If the market later trades at £5.40, your holding is worth £1,080 on paper, a £80 gain before costs. If the company declares a 10p dividend, you receive £20 for your 200 shares on the payment date, assuming you owned them on the record date. If a 2-for-1 split occurs, you’d now hold 400 shares and, all else equal, the market would adjust to about £2.50. Your total value is unchanged by the split itself.
Changes in the denominator matter. If the company cancels shares through a buyback, there are fewer shares among which to spread profits, often lifting earnings per share even if total profit is flat. New share issues push the count the other way and can dilute existing holders unless offset by stronger profits.
In day-to-day trading, what you see is the live share price and your position size. The mechanics behind the count, class and corporate actions explain why that price moves and how each share translates into votes, dividends and long-term ownership.