Academy Stock Market Basics Shares & InstrumentsWhat is a Share?

Lesson 1 of 3

What is a Share?

Written byFinzony Editorial Team

Reviewed byFinzony Finance Team

UpdatedJune 2025

Own a piece of India's biggest companies. Here's exactly what that means.

The Simple Explanation

A share (also called a stock or equity) is a unit of ownership in a company. When a company divides itself into millions of small pieces and sells those pieces to the public, each piece is called a share.

If TCS has 370 crore shares outstanding and you buy 100 shares — you own 100/370,00,00,000th of TCS. You're a part-owner. You have a claim on their profits, their assets, and a vote in key decisions.

Why do companies sell shares? Because growing a business requires capital — money to hire, expand, build. Instead of taking a bank loan (which charges interest), a company can sell ownership stakes. Shareholders invest hoping the company grows — and so does their share's value.

Types of Shares

Equity Shares (Common Stock)

What most investors buy. As an equity shareholder you get:

✅ Right to vote in AGM (Annual General Meeting)
✅ Dividends (share of profits, when declared)
✅ Capital gains (if price rises)
⚠️ Last in line if company liquidates

Example: Buying HDFC Bank on Zerodha = equity share

Preference Shares

Hybrid instrument — part equity, part bond-like. Preference shareholders get:

✅ Fixed dividend paid first (before equity holders)
✅ Priority claim on assets if company winds up
❌ Usually no voting rights
❌ Limited upside — no extra gains beyond fixed dividend

Not commonly available to retail investors on exchanges

Rights of a Shareholder

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Dividend Income

If the company makes a profit and decides to share it, shareholders receive dividends proportional to their holdings. E.g. if TCS declares ₹28/share dividend and you own 50 shares = ₹1,400 credited to your bank.

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Capital Appreciation

If the share price rises from ₹1,000 to ₹1,500, your investment grew by 50%. You realise this gain when you sell. This is the primary way most equity investors earn money.

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Voting Rights

You can vote on major decisions — mergers, board appointments, dividend policies. One equity share = one vote. Large institutional investors (holding crores of shares) have significant voting power.

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Right to Information

Listed companies must publish quarterly results, annual reports, management commentary, and material events. SEBI mandates this — you have a right to know how your company is performing.

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Right Issue / Bonus Shares

Company may offer existing shareholders the right to buy new shares at a discount (Rights Issue), or give free bonus shares in proportion to their holding (Bonus Issue).

How Share Prices Are Determined

Share price is set purely by supply and demand at any given moment. But what drives that supply and demand?

Company Earnings

Profits beat expectations → buyers rush in → price rises

Profit warning or loss → sellers exit → price falls

Industry Outlook

IT sector boom, new government contracts → sector stocks rise

Banking crisis, rising NPAs → banking stocks fall

Macroeconomics

RBI rate cut → cheaper borrowing → companies grow → stocks rise

Inflation spike → RBI hikes rates → growth concerns → stocks fall

Investor Sentiment

Bull market, optimism, FOMO buying → prices overshoot reality

Fear, crisis news, panic selling → prices undershoot reality

Key Terms Every Shareholder Should Know

Face Value (Par Value)

The original value assigned to a share by the company — typically ₹1, ₹2, or ₹10. Completely different from market price. TCS face value is ₹1 but trades at ₹3,800+.

Market Price (CMP)

Current Market Price — what you actually pay/receive when you buy or sell. Determined by the exchange every second during trading hours.

Market Capitalisation

Total value of a company = Market Price × Total Shares Outstanding. TCS at ₹3,800 × 370 crore shares = ~₹14 lakh crore market cap.

Dividend Yield

Annual dividend per share ÷ Current Share Price × 100. If a ₹500 stock pays ₹15/year dividend, yield = 3%. Useful for comparing income stocks.

P/E Ratio (Price-to-Earnings)

Market Price ÷ Earnings Per Share. A P/E of 25 means you're paying ₹25 for every ₹1 the company earns annually. High P/E = high growth expectations. Low P/E = value or concern.

EPS (Earnings Per Share)

Net Profit ÷ Total Shares. If TCS earns ₹40,000 crore profit and has 370 crore shares → EPS = ₹108/share. Rising EPS = company growing.

Key Takeaway

A share is a unit of ownership in a company. Owning shares gives you rights to dividends, capital gains, and voting in key decisions. Share price is driven by supply and demand, which in turn is driven by company performance, macro conditions, and investor sentiment. As a shareholder, you are part-owner of a real business.

Frequently Asked Questions

Can a company take back my shares?

Only in special circumstances — like a delisting (the company goes private), a buyback offer (company repurchases shares from you at a premium), or if you've been found to have acquired shares illegally. In normal circumstances, shares you've bought are yours.

What happens to my shares if the company goes bankrupt?

In bankruptcy/liquidation, assets are distributed in order: secured creditors → unsecured creditors → preference shareholders → equity shareholders. Equity shareholders are last — and often get nothing. This is why diversification matters.

Is there a minimum number of shares I must buy?

For most stocks, you can buy just 1 share. But some are only available in 'lots' through derivatives. In regular equity markets, buying a single share of any company is fine.

What is a stock split?

A company divides each existing share into multiple shares. Example: Tata Motors does 2:1 split — you had 100 shares at ₹600 each → now you have 200 shares at ₹300 each. Total value stays the same. Splits increase affordability and liquidity.

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