Understanding the Concept of Shares in a Business
Shares are units of ownership in a business based on the amount of capital a person has put into the business. They are often referred to as stocks, though stocks usually refer to public companies listed on an exchange. Shares in a business, by contrast, may be publicly traded or privately owned. A company may issue different types of shares to different stakeholders, including employees, investors or others.
For example, a company might issue common shares to its employees, while another type of share may be issued to venture capitalists. By purchasing shares in a company, individuals can become a part-owner and benefit from the profits of the business as the company grows.
How Shares Are Issued and Traded
When a company chooses to issue shares, they are typically done so through an Initial Public Offering (IPO). This is the process in which a company goes public by offering its shares to the public.
The process of issuing shares also involves the filing of documentation with the Securities and Exchange Commission (SEC). This is done to ensure compliance with applicable securities laws. After the IPO, the shares of the company will be traded on a public exchange.
For privately held companies, shares may also be issued to private individuals or entities, such as venture capitalists or investors. The shares of a privately held company do not need to be registered and traded with the SEC, but the shares are usually subject to a set of restrictions that limit how the shares can be transferred.
The Impact of Shares on Business Ownership and Control
Shares are important because they grant ownership and control of a business to those who own the shares. The more shares a person owns, the more control they have over the business. For this reason, closely held companies are often owned by a small group of people who share control.
Shares also grant the owners the right to receive a portion of the profits generated by the company in the form of dividends. Generally speaking, the more shares owned, the greater the return from dividends. In public companies, dividends are usually declared and paid on a quarterly basis.
