An Acceler8now.com Investing Education Resource, July 11, 2007
Okay, you have finally decided that it's a wise step to begin to invest. Great! Or perhaps you're still probing, in search of that final conviction? I'll help you out by urging you not to delay any further. Each day that passes is a lost opportunity if you fail to take action that should be moving you towards prosperity and financial independence. Will stock investing help with this? The verifiable answer is that it has helped millions of people across the globe (emphasis: Nigeria inclusive) to become wealthy, sometimes extremely, over the ages. Why shouldn't it work for you? Believing that it will, let's get to the basics - because the knowledge is vital for the success you desire.
What is a Share?
A share is a unit of stock or ownership interest in a company. It represents a fractional ownership in a particular company. 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.
Flexible 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). Read more on 'limited liability'.
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.
