What is a Share?

A share is a single unit of ownership in a financial security. The term "share" is most often used to refer to a stake in a stock, mutual fund or limited partnership. It is usually the smallest amount of ownership possible in a financial security. Usually, many shares of an investment are owned by a single individual, collective or company.

Identification

When you invest in a stock, mutual fund or limited partnership you buy at least one share of it. The share has a share price that varies from day to day. You must pay the share price that is quoted on the day you purchase the security. Whether you pay a lot for a share or a little for a share, you still own one share. This is why investors try to buy shares when prices are low and sell when prices are high.

Features

It is common for investors to buy a financial security several times at different share prices. This usually happens when the share price drops and the investors hopes to lower the average price paid per share. It is very important to keep track of how much was paid for each share and the date it was purchased. The original price paid per share is called the cost basis. Investors must know the cost basis when they later sell the financial security. The Internal Revenue Service wants to know the capital gain or capital loss on an investment. This is the difference between the price paid and the price at the time of sale. There are also different tax rates for investments held more and less than one year.

Function

Some financial securities have share prices that do not fluctuate. For example, money market funds keep a constant share price of one dollar. If an investor buys $1000 worth, they get 1000 shares. The money market fund then pays interest that is reinvested in the form of more shares at that one dollar price. Some kinds of shares pay dividends. This is a portion of a company's profits that is given to shareholders. For each share owned, the shareholder gets a small payment. Other types of shares pay no interest or dividends. Investors hope the share price of these securities grows in value so the shares can later be sold at a profit.

Benefits

When an investor owns a share, they own a portion of the financial security that issued the share. In some cases this entitles the shareholder to a say in how the financial security is run. Every share is designated as either a voting share or a non voting share. This is often defined by calling a non voting share "class A" and a voting share "class B." A voting share allows a shareholder a vote to determine company policy, mergers and the board of directors. Each share gives the investors one vote.

Considerations

A share may change over time. Occasionally companies split their stock. This happens when the share price gets very high and the company wants it to be at a manageable level. If there is a two for one split, the investor gets two shares for every one they previously owned but the share price is cut in half. Companies can also spin off a subsidiary and make it its own company. The investor is then given a number of shares in the new company. If the company an investor own shares in is taken over by another company, the investor is given shares in the new company while the old shares disappear.