A part of portion of a large amount which is divided among a number of people or to which a number of people contribute.
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 holders 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 rights, so shareholders have a say in the election 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 to 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.
