 |
| A beginner-friendly guide to understanding shares, company ownership, holdings, market price and market capitalisation. |
Stock Market Academy – Part 2
What Is a Share? Understanding Company Ownership
Series: Stock Market Academy – From Zero to Confident Investor
If you are completely new to the stock market, you may have heard sentences like:
“I bought 10 shares of a company.”
But what does that actually mean?
Are you really an owner of the company?
Do you own a small part of its office, factory, or products?
Why does the price of one share change every day?
And if you buy a share for ₹100, how can it become ₹120 or fall to ₹80?
In Part 2 of the Stock Market Academy, we will understand the meaning of a share from the very beginning.
Don't worry about complicated stock-market language. We will learn everything step by step in simple English.
What Is a Share?
A share is a small unit of ownership in a company.
When a company divides its ownership into many units, each unit is called a share.
For example, imagine a company called ABC Foods Ltd.
Suppose ABC Foods has issued:
1,00,000 shares
If you own:
100 shares
you own a very small portion of that company.
Your ownership percentage would be:
100 ÷ 1,00,000 × 100 = 0.1%
So, when you buy shares, you are not simply buying a piece of paper or a number on an app.
You are buying a financial ownership interest in the company.
A Simple Example of Company Ownership
Let's make this even easier.
Imagine four friends start a small business.
They decide that the business will have 1,000 shares.
Each share represents a small part of the ownership.
If you own:
- 100 shares → you own 10% of the shares
- 50 shares → you own 5%
- 10 shares → you own 1%
- 1 share → you own 0.1%
The same basic idea applies when companies have millions or billions of shares.
The numbers become much larger, but the concept remains the same.
A share = a unit of ownership.
Why Do Companies Issue Shares?
You may now have another question:
Why would a company divide itself into shares and sell them to the public?
One major reason is to raise money.
Imagine a company wants to:
- build a new factory
- open more stores
- develop new products
- expand into another country
- repay certain debts
- invest in technology
- grow its business
The company may need a large amount of capital.
Instead of borrowing all the money, a company can raise capital by issuing shares, subject to applicable rules and regulations.
People and institutions can buy those shares.
The company receives capital, while investors receive an ownership interest.
This is one of the fundamental ideas behind the stock market.
What Happens When You Buy a Share?
Let's say you buy 10 shares of ABC Foods Ltd.
After your purchase is completed, those shares become part of your holdings.
For a listed company, your securities are generally held electronically through your Demat account.
This connects directly with what we learned in Part 1:
Bank account → Money
Trading account → Used to place buy and sell orders
Demat account → Holds your securities
So if you buy 10 shares and continue to own them, those 10 shares become part of your holdings.
Does Owning One Share Make You a Company Owner?
Yes, in a legal and economic sense, owning shares generally means you are a shareholder of the company.
However, there is an important point.
Being a shareholder does not mean that you can walk into the company's office and tell employees what to do.
Your ownership is proportional to the shares you own, and your rights depend on the type of security and applicable company law.
A person owning 10 shares in a company with millions of outstanding shares has a very small ownership percentage.
So remember:
You can be an owner without having control over the company.
What Rights Can a Shareholder Have?
Depending on the type of share and applicable rules, shareholders may have certain rights.
These can include:
1. Voting Rights
Common equity shareholders may have voting rights on certain company matters.
For example, shareholders may vote on particular resolutions or matters placed before shareholders.
Your voting power generally depends on the shares and voting rights you hold.
2. Dividend
A company may distribute part of its profits to shareholders as a dividend.
But dividends are not guaranteed.
A profitable company may choose to retain its earnings for expansion or other purposes instead of paying a dividend.
3. Capital Appreciation
If the market price of your shares increases, the value of your investment increases.
For example:
You buy a share at:
₹100
Later, its market price becomes:
₹130
Your unrealised gain is:
₹30 per share
However, the price can also fall.
If the share falls from ₹100 to ₹70, your unrealised loss is:
₹30 per share
This is why investing in shares involves risk.
How Does a Share Price Work?
This is one of the most important concepts for a beginner.
A company's share has a market price.
For example:
ABC Foods Ltd. – ₹150 per share
This means that, at that moment, the market price of one share is around ₹150.
But the price is not fixed forever.
It can move:
₹150 → ₹155 → ₹148 → ₹162 → ₹140
Sometimes these changes happen within a short period.
Why Does the Price of a Share Go Up and Down?
The simple answer is:
Demand and Supply
If more people want to buy a share than sell it at the available prices, the price may rise.
If more people want to sell than buy, the price may fall.
But why people want to buy or sell is much more complicated.
Share prices can be affected by factors such as:
- company earnings
- revenue growth
- future expectations
- business performance
- industry conditions
- economic conditions
- interest rates
- competition
- government policies
- global events
- investor sentiment
- company news
This is why a company's share price can change even when you have not personally seen any change in the company.
Face Value and Market Price Are Different
Beginners often confuse these two terms.
Face Value
The face value is the nominal value assigned to a share by the company.
For example:
Face Value = ₹10
Market Price
The market price is the price at which the share is trading in the market.
For example:
Market Price = ₹250
So a share can have:
Face Value = ₹10
but
Market Price = ₹250
They are not the same thing.
Easy memory trick:
Face Value = Nominal value
Market Price = Current market trading price
What Is Market Capitalisation?
Now we are ready for another important term:
Market Capitalisation, often called Market Cap.
It tells us the total market value of a company's outstanding shares.
A simplified formula is:
Market Capitalisation = Share Price × Outstanding Shares
Example
Suppose ABC Foods has:
1,00,000 outstanding shares
and the current share price is:
₹50
Then:
₹50 × 1,00,000 = ₹50,00,000
So its market capitalisation would be:
₹50 lakh
This is different from the price of one share.
Remember:
Share price = value of one share
Market cap = market value of all outstanding shares
A ₹5,000 Example for a Beginner
Let's connect this lesson to a real beginner situation.
Suppose you have:
₹5,000
And you are considering a company whose share price is:
₹50
Ignoring brokerage, taxes and other applicable charges for this simple example:
₹5,000 ÷ ₹50 = 100 shares
So you could buy approximately:
100 shares
Now suppose the market price rises to:
₹60
Your 100 shares would be worth:
100 × ₹60 = ₹6,000
The increase would be:
₹1,000
before considering applicable charges and taxes.
But now imagine the share price falls to:
₹40
Your 100 shares would then be worth:
₹4,000
That means the market value has fallen by:
₹1,000
This simple example teaches us something very important:
The stock market can create gains, but it can also create losses.
There is no guaranteed profit simply because you bought a share.
What Does "Holding a Share" Mean?
You may hear investors say:
“I am holding this stock.”
It simply means they own the shares and have not sold them.
You buy:
20 shares
You continue to own them for six months.
Those 20 shares are your holdings.
If you later sell all 20 shares, you no longer hold those shares.
This is why you may hear:
- shareholding
- holdings
- holding period
- shareholder
These words are connected to ownership.
Share vs Stock: Are They the Same?
You will often hear people use share and stock almost interchangeably.
For beginners, this is usually fine.
But there is a small difference in how the words are commonly used.
Share
Stock
For now, remember:
Share = a unit of ownership
Stock = a general term for shares/equity investments
What Is Equity?
Another word you will frequently hear is:
Equity
In simple terms, equity represents ownership interest in a company.
When people say :
“I invest in equity.”
they generally mean they invest in shares/equity securities of companies.
So you may see these words together:
Equity → Share → Ownership
You don't need to memorise complicated accounting definitions yet.
We will study equity in greater detail later in the Stock Market Academy.
Can a Company Create More Shares?
Yes.
A company may issue additional shares under certain circumstances and subject to applicable rules.
This can affect existing shareholders.
For example, imagine a company has:
1,00,000 shares
You own:
1,000 shares
Your ownership percentage is:
1%
Now imagine the company issues another:
1,00,000 shares
If you don't receive additional shares, the total number of shares becomes:
2,00,000
Your 1,000 shares would now represent:
0.5%
instead of 1%.
This concept is called dilution.
Don't worry if it feels complicated now.
Just remember :
When the total number of shares increases, an existing shareholder's percentage ownership can decrease if they do not receive additional shares.
We will study dilution more deeply later.
What Is a Bonus Share?
Sometimes a company may issue additional shares to existing shareholders without requiring them to pay the normal market price for those additional shares, subject to the applicable rules.
These are called bonus shares.
For example, in a hypothetical 1:1 bonus issue, an investor holding:
100 shares
may receive:
100 additional shares
and therefore hold:
200 shares
However, this does not automatically mean the investor has doubled their wealth.
Why?
Because the company's total number of shares also increases, and the market price can adjust accordingly.
This is an important lesson :
The number of shares you own and the total value of your investment are not the same thing.
What Is a Stock Split?
A stock split changes the number of shares by dividing each existing share into more shares, according to the split ratio.
For example, in a hypothetical:
1:2 split
one existing share may become two shares.
If you had:
100 shares
you might then have:
200 shares
The market price is adjusted correspondingly.
Again, the number of shares increases, but this alone does not create free wealth.
Share Price vs Value of the Business
This is a very important concept for beginners.
A ₹1,000 share is not automatically more expensive than a ₹100 share in the sense of the whole company.
Why?
Because companies have different numbers of outstanding shares.
Company A
Share price = ₹1,000
Outstanding shares = 10 lakh
Company B
Share price = ₹100
Outstanding shares = 2 crore
You cannot decide which company is "bigger" simply by looking at the share price.
You need to look at things such as:
Market Capitalisation
and, later, the company's:
- revenue
- profits
- debt
- cash flow
- growth
- valuation
- business quality
We will learn these step by step in future lessons.
What Happens If a Company Makes a Profit?
Suppose ABC Foods has a successful year.
The company earns a profit.
What happens to that profit?
The company may use its profits in different ways.
It might:
- reinvest in the business
- build new factories
- develop new products
- repay debt
- keep cash for future needs
- pay dividends
- undertake other permitted corporate actions
Therefore:
Company profit does not automatically mean that every shareholder receives cash.
The company's decisions and applicable rules matter.
What Happens If the Company Performs Poorly?
The opposite can also happen.
If a company's business performance deteriorates, investors may become less willing to buy its shares.
The share price may fall.
In severe cases, a company can face financial difficulties or even fail.
This is why buying a share means accepting investment risk.
Before buying a company, an investor should try to understand the business rather than buying only because the share price looks attractive.
A Beginner Should Never Ask Only: "What Is the Share Price?"
A better set of questions is:
1. What does this company actually do?
Can I understand its business?
2. How does the company make money?
Who pays the company?
3. Is the business growing?
Look at revenue and profit over time.
4. Does the company have too much debt?
Debt can create additional risk.
5. What is the company's valuation?
A good business can still be an expensive investment.
6. What are the major risks?
Every business has risks.
7. Why am I buying it?
Because I understand the company?
Or simply because someone recommended it?
These questions will become increasingly important as we move through the Stock Market Academy.
The Biggest Beginner Mistake: Buying Without Understanding
What happens if the price falls?
You may panic because you don't understand what you own.
Instead, try to develop this habit:
Learn → Understand → Research → Decide → Invest
Not:
Hear a tip → Buy → Panic → Sell
The purpose of this Stock Market Academy is to help you understand what you are buying before you put your money into it.
Important Stock Market Terms From Part 2
| Term | Simple Meaning |
|---|---|
| Share | A unit of ownership in a company |
| Shareholder | A person who owns shares |
| Stock | A general term for shares/equity investments |
| Equity | Ownership interest in a company |
| Holding | Shares you currently own |
| Face Value | Nominal value assigned to a share |
| Market Price | Current price at which a share trades |
| Market Capitalisation | Share price × outstanding shares |
| Dividend | Distribution a company may make to shareholders |
| Capital Gain | Increase in value when an investment is sold for more than its purchase price |
| Dilution | Reduction in an existing shareholder's ownership percentage when more shares are issued |
| Bonus Share | Additional shares issued to existing shareholders under a bonus issue |
| Stock Split | Division of existing shares into a larger number of shares |
Share vs Demat Account vs Money
Let's connect everything we have learned so far.
Suppose you have ₹5,000.
Your Bank Account
Contains your:
₹5,000 money
Your Trading Account
Helps you place an order to:
Buy or sell shares
Your Demat Account
Holds your:
Shares/securities
Your Share
Represents:
Your ownership interest in the company
So:
Money ≠ Demat account ≠ Share
They are three different concepts.
What You Should Remember From Part 2
If you remember only these points, you have understood the heart of this lesson:
- A share is a unit of ownership in a company.
- When you buy shares, you become a shareholder.
- Your ownership percentage depends on the number of shares you own compared with the company's outstanding shares.
- Owning shares does not automatically mean you control the company.
- Shareholders may have rights such as voting rights, depending on the type of shares and applicable rules.
- Dividends are not guaranteed.
- Share prices can rise or fall.
- Market price and face value are different.
- Market capitalisation is different from the price of one share.
- Your Demat account holds your securities; it is not your money account.
- A higher number of shares does not automatically mean higher wealth.
- Never buy a share simply because someone says it will go up.
Frequently Asked Questions
1. What is a share in simple words?
A share is a small unit representing ownership interest in a company.
2. If I buy one share, am I an owner?
Yes, you become a shareholder, although your ownership may be extremely small.
3. Does owning shares mean I control the company?
No. Ownership and control are not the same. Your influence depends on factors such as the number and type of shares you hold and applicable voting rights.
4. What is the difference between a share and a stock?
A share usually refers to one unit of ownership, while stock is commonly used as a broader term for shares or equity investments.
5. What is a shareholder?
A shareholder is a person or entity that owns shares of a company.
6. Can I earn money from shares?
Potentially, through an increase in share price and, where declared, dividends. However, neither is guaranteed, and share prices can fall.
7. What happens when a share price falls?
The market value of your holding falls. If you sell at the lower price, you may realise a loss.
8. What is market capitalisation?
Market capitalisation is broadly calculated as:
Share Price × Outstanding Shares
It represents the market value of the company's outstanding shares.
9. Is a ₹100 share cheaper than a ₹1,000 share?
Not necessarily. You cannot compare companies only by their share prices. The number of outstanding shares and the company's overall valuation also matter.
10. Where are my shares kept after I buy them?
For securities held electronically in India, your shares are held through your Demat account with the relevant depository participant/depository system.
11. Can a company issue more shares?
Yes, companies can issue additional shares through permitted methods and subject to applicable laws and regulations. This can affect existing ownership percentages.
12. Is investing in shares risk-free?
No. Share prices can rise or fall, and investors can lose some or all of their invested money.
Conclusion
A share is much more than a number displayed on a stock-market app.
When you buy a share, you are buying an ownership interest in a company.
That ownership may be very small, but the concept is important.
You now know the basic meaning of:
Share → Ownership → Shareholder → Holding → Market Price → Market Capitalisation → Dividend → Capital Gain
You also learned why a ₹5,000 investment can become worth more or less depending on the movement of the share price.
But we are still at the beginning.
Before buying your first share, you need to understand how a stock market order actually works.
Coming Next in Stock Market Academy:
Part 3 – How to Buy Your First Share: Demat Account, Trading Account and Your First Stock Order
You will have to also read this related link given below:
Stock Market Academy Part 1: What Is the Stock Market? A Complete Beginner's Guide
We will go step by step, from opening the right account to understanding Buy, Sell, Quantity, Market Order, Limit Order and Holdings.
Your Learning Challenge
Before moving to Part 3, try answering these questions yourself:
1. What is a share?
2. What is a shareholder?
3. What is the difference between market price and face value?
4. What is market capitalisation?
5. Where are your shares held after you buy them?
If you can answer these five questions, you have successfully completed the foundation of Part 2.
Keep learning. Don't rush to invest. Understanding comes before investing.