What is a Share

Before investing, it is good you have a working knowledge of what a share is.
A share is a unit of stock or ownership interest in a company. It is like breaking down a company into smaller bits, each bit representing a fractional ownership in the company. For example, a company with share capital of $10,000 can be divided into 10,000 shares; and by so doing, each share in the company is worth $1.

When a company chooses to go beyond individual ownership (sole proprietorship) or a partnership of a couple of people to open up to a larger number of membership, the individuals' ownership interest is denominated in shares. The contribution to the capital of the company is made by paying for units of shares. That way, each investor's ownership in the company - his proportional stake in the company - is determined by the proportion of shares he pays for and acquires.

Ownership Interest With Right Over Assets
In public, quoted companies, this is in it's fullest operation because those shares are freely exchanged by investors/shareholders. Any of the owners can sell off at any time, provided there is somebody willing to buy. Similarly, someone who never owned an interest but now decides to become a member of the company can buy shares to become one, provided there is an existing owner who is willing to sell some or all of his holding. Once you own a share, you are a joint owner of the company, along with other shareholders. The assets of the company - factory (if a manufacturing company), buildings, equipment, cars, bank deposits, cash, etc) belong to all the shareholders collectively, just as any liabilities of the company. When you own a Dangote Sugar or GT Bank stock for instance, you have become one of the proud owners of that company. Simple. With your equity interest, you have a voice, except that somebody who owns more shares has a louder voice. More importantly, you share in the earnings of the company and if the company performs well, you could get good dividend, including the possibility of a bonus issue. Better still, such good performance could stimulate a share price rise, meaning that the market price could go far above what you paid to acquire it, leaving you with a good profit if you sell. If your company fails to do well, the reverse will likely be the case.

Wealth-building Vehicle
Interestingly, of all this is possible without you having to sweat over how to run the business. The management of the company, guided by a few members who the shareholders appoint into a board of directors and supported by the staff they employ, will see to the running of the business. When this works well, as happens with many successful companies, the owners - shareholders - sit back and reap the benefit of their equity investment through dividends and capital appreciation. While owners may engage in their various personal businesses or activities, their money - the investment in the shares of the company - also keeps busy, working and earning them wealth. Portfolio income, as earning from shareholding is called, will not engage you actively; rather you're left free to pursue other interests. Again with the concept of limited liability attaching to such ownership, your other assets and your person are insulated from any liability relating to that company (except to the extent of any personal guarantee you choose to sign).

In summary a share is a unit of stockholding in a company, representing the shareholder's equity interest. Equity investors are owners and not creditors and so remain for life, sharing in the profits or losses as well as assets and liabilities of the company, unless they choose to sell or transfer their interest.

When you invest in the shares of a company, you assume responsibility as an owner (equity investor), putting your hard-earned resources on the line. Equity investors are the principal risk-bearers in the business as they provide the risk capital for its operation. Creditors have a right to repayment, irrespective of the fortunes of the business, but not so with ordinary shareholders. Their investment could disappear into thin air, if the business fails to perform well. Though this commitment is limited to the capital contribution (see the concept of limited liability), it could be substantial depending on your level of investment. So, what rights does share ownership confer on the shareholder who shoulders such huge responsibility?

You Have a Voting Right
Yes, every shareholder has a voice under the protection of the law. A shareholder has a right to be notified of a general or emergency meeting of the company, a right to attend such meeting and also a right to be heard at such meeting. More importantly, he has a vote for each share he owns, when issues are put to vote at such meetings. Such issues could be the appointment of directors or auditors, or key resolutions on the direction of the business. When you own shares in Nigerian Breweries, for instance, you are entitled to participation in its shareholders' meeting like the Annual General Meeting. You must be invited. The law further grants you a right to appoint a proxy to represent you when you are not able to attend personally and such proxy will assume all the rights due to the shareholder. What this means is that the shareholder has decision-making powers, even if he doesn't actively participate in the day-to-day running of the business.

The Right to Dividend Once Declared
The shareholder is entitled to dividend, once a declaration of dividend is made. Dividend is a reward to shareholders for their investment, usually by distribution of part of the earnings of the business. A company has no explicit obligation to pay a dividend, but since a key objective is to enhance shareholder value, payment of dividend becomes a major concern of every company. It is difficult to sustain the share price over a long period, if a company consistently fails to return any dividend to shareholders. It is however the directors, appointed by the shareholders, who decide what can prudently be distributed, if any, and recommend that to the members for approval at their general meeting. Dividend can be in cash or distributed as bonus shares to the shareholders. If any such declaration is made, you as shareholder, have a right to receive your equitable share - in proportion to your shareholding. For some companies like First Bank and GT Bank, dividend payment and bonus issues are quite regular and sizeable, ensuring healthy returns to shareholders.

Right of Transfer
The right of transfer is at the root of the marketability of shares, a major attraction for stock investing. As a shareholder, you have a right to choose to sell your shares and will not need the approval of the company to do so. Just an instruction to your stockbroker, and it's done, provided there is a willing buyer. If your shares are in the Central Securities Clearing System (CSCS), what this means is that you could receive the proceeds of a stock-sale in just a few days. (Read more on 'share certificate or no certificate' here).

Right to Inspect The Company's Books and Records
Hardly a right shareholders exercise directly, but the law confers all the right on you as shareholder to go take a look at the books. Getting the audited financials statements - annual reports - and access to published quarterly results are ways every shareholders gets informed of the financial transactions of the business. Many are satisfied with this. If you choose to go digging into the books however, you enjoy the backing of the law and can request to do so.

Right to a Proportionate Ownership of Company Assets
The shareholder is not able to sell off any asset of the company, but this does not diminish or erase his right to a proportionate interest in the asset value of the

Right to Share in the Residual Value at Liquidation
Investors usually don't invest for this purpose, since the target is hardly to participate in a liquidation. However, given the reality that businesses do fold up, it's important to note the shareholder's right to a share of the residual value. The rights of all classes of creditors supercede those of the ordinary shareholder, but when these have been settled and there is something left in the tray, each shareholder is entitled to a proportional share. This could be significant if the company has valuable assets that far exceed the liabilities in value.

Right of Legal Action Against the Company
Yes, the shareholder can proceed in an action against the company to seek redress where his interest has been injured. He can indeed apply for the winding up of the company if he has grounds to justify this.

Other Rights as Enshrined in the Memorandum and Articles of Association
Your company has a Memorandum and Articles of Association where more details of the rules guiding the business, including possible rights of members, may be set out. You will not know what clauses these documents contain unless you read them. So, if you want to know more about the rules governing your company, access and read these documents.

So, as you buy into any company now, it's good to know that to some extend, you can be seen and heard and shouldn't just be a statistic in the register of members. Many shareholders have gained fame and influence through regular attendance of company meetings and critical evaluation of the actions of Management and the Board. When they exercise those rights effectively, taking these parties who run the business on their behalf to task over heir actions, they (directors/management) are bound to sit up and work more in shareholders' interest.

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