January 26, 2022


Accounting + Finance Blog

What are shares? Key points and explanations

What are shares? Key points and explanations

In the investment world, shares are the primary method to invest. Other forms of investments are treasury bills, bonds, mutual funds, derivatives, private equity, and real estate. When an individual has excess funds, it is normal for him or her to seek ways to use the fund, and investment in the aforesaid are ways to do so.

What are shares?

Shares are units of the capital of a limited liability company.

A share is a unit of such capital in a company.

Also, shares are units of capital that symbolized part ownership of a limited liability company.

Key points and explanations

From the above definition, the following can be deduced.

Shares are made up of units. A share is a single unit of ownership. This can be explained as buying a unit of biscuit. You may send a child to buy a unit of biscuit that is sold at 50 Naira. You might give the child 300 Naira to buy 6 units of that biscuit. This means 6 units multiple by 50 Naira. That gives 300 Naira.

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Shares work in the same way. A person can own 1000 shares that have a market price of 3 Naira. This means that the value of the shares is the 1000 shares multiple by 3 Naira. This gives 3000 Naira worth of shares.

Shares are capital. Capital is the cash or fund used to start a business. As the business continues, more capital can be injected into the business by the owners. This additional capital can be used to expand the business.

In the same vein, buying shares means you are giving the company capital. Such funds can be used for growth and expansion.

Share signifies part ownership. Having shares in a company only means that you are one of the owners of the company. If you own 50,000 shares, it means you have 50,000 ownership right on the company.

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The worth of your shares depends on the total issued shares of the company. If the total issued shares of the company are 200,000 shares, it means you owned 25% of the company.

Lastly, shares are issued by companies. Only limited liability companies (LLC) can issue shares. An LLC is a business registered through the corporate affairs commission (CAC) in Nigeria as a company.

A company can be a private equity company or a public equity company. A private equity company means such a firm cannot trade its shares in a recognized stock exchange market such as the Nigerian Stock Exchange (NSE) market or the New York Stock Exchange (NYSE).

To conclude, shares are units of ownership of a company. The number of shares owned by an investor determines the percentage of holdings in that company. Finally, shares are one major investment tool individuals and businesses can harness.