In simple terms, shares represent claims on the assets and earnings of a company and reflect part ownership of the company. Depending on

where in the world you are, shares may be more commonly referred to by other terms such as "stocks" or "equities". While owning shares in a company grants part-ownership in the company and reflects a claim on

the assets and earnings of such a company, in reality, most shareholders would rather not have to exercise that right, since the claim on assets only becomes relevant in the event that a company goes bankrupt. Even then, in the event of liquidation, the claims of those who hold a company's shares are merely residual claims on the assets of the company. That is, shareholders only get to lay their hands on whatever is left after all creditors have been paid off. Shares have these following distinctive characteristics:

(i) Ownership rights: When you buy a share, you are buying a piece of that company - you become its part owner. That ownership gives you certain rights, including voting on important matters of the company and

participating in the profits.

(ii) source of Income: We have already explained that. Since share olders are part owners of the company, they are entitled to get a part of the annual profits of the company. Shareholders get income by way of

dividends and bonus shares.

(iii) Decision-making and voting rights: holding shares grants voting gnts, so shareholders have a say in the collection of the members of the Board of Directors;

(iv) Limited liability for shareholders: for each individual share holders, the maximum value at risk is the total value of their investment in the shares of the company. This means that, unlike in a partnership, ordinary shareholders are not personally liable for the debt of a company in the event of bankruptcy.

(v) Uncertain returns: while many companies pay out dividends too shareholders, there is no obligation on companies to do so. Indeed, there is no guarantee of returns in any form to shareholders. However, in return

for this degree of uncertainty and risk, shares carry higher expected returns over the long term than most investments. This forms the basis of the relationship between risk and return for investors in stocks and shares.

(vi) Risk: However what if the company dint make profits as expected? There won't be much demand for it's shares nor it will carry a high rate of profit share. Hence, along with the potential for extraordinary gain comes the potential for high loss. These two go hand in hand. If you are not careful in choosing a company, you can lose money by investing in stocks. Not only in stocks, in fact, have even the safest savings deposits carried unseen risks. When you account for inflation and taxes, you'll find that most of the so called risk free investments are not so safe.