OpenMarkets Education

What is a share?

A share is a unit of ownership of a company. When you buy a share, you become a part owner of that company’s assets. This comes with the entitlement to share in its profits through any dividends paid.

Shares have a par – or face – value. This is the initial value given to each share when the company first goes public via an initial public offering (IPO). Once listed, shares trade at their market price, which might be higher or lower than their par value.

Shares are bought and sold on the sharemarket – which is also known as the stockmarket. Companies are classified into one of 11 sectors as determined by the Global Industry Classification Standards (GICs).

There are three main types of share:

Ordinary sharesOrdinary shares are the most common and represent the major portion of a company’s equity.
Holders of ordinary shares have full voting rights and receive profits distributed in the form of dividends; ordinary shareholders rank after holders of debentures and preference shares for dividend payments.
Preference sharesPreference shares generally have a claim to profits and dividends ahead of ordinary shareholders, and usually don’t have voting rights.
Some preference shares are convertible – they can be converted to ordinary shares at a future date. Convertible preference shares are also known as hybrids.
Contributing sharesContributing shares are issued with only part of their par value paid and are sometimes known as partly paid shares.
They are generally issued with an initial payment upfront, with the balance to be made in one or more instalments.
The obligation to pay future instalments depends on the type of company:
> If it is a limited liability company, there is a legal obligation to pay the instalment/s.
> If it is a no liability company, the shares can be forfeited.
Once the instalment/s are paid, contributing shares revert to ordinary shares.

Stock versus share

While ‘stock’ and ‘share’ are often used interchangeably, each has a slightly different meaning.

Stock represents the total of all shares on issue for a company; its shares are the smallest units of ownership of that company.

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