The concept of a share underpins every stock exchange in the world, and is one of the most fundamental but equally complex questions that an investor can raise.  Most investors consider a share to be a tradeable commodity, like any other, with a value but also with the potential to generate revenue both immediately and over the longer term.  Whilst both these are true, a share is significantly more important in a legal and commercial sense than just another commodity.

The lay concept of what a share is may often differ significantly from what, in legal terms, a share actually is.  A share is not a share in the assets of a company directly, nor is it a tangible portion of ownership. A share can be more properly considered to be a number of related rights, traditionally embodied in the form of a share certificate, although modern public trading is conducted electronically. 

Individual shares can be transferred, and are transferred on a daily basis on the major stock exchanges and privately.  Whilst there is no limit on to whom a particular share can be sold in publicly traded companies, most private companies have within their constitution the requirement that either shares be offered to existing shareholder pre-emptively or that prospective buyers must be approved before transfer can commence. 

Shares can also be categorised largely into two distinct types, although there is no specific requirement for a share to be either (i.e. other categories of shares can be permitted by a company’s constitution).  The most common type of share is the ordinary share which has a variable rate of return depending on the performance of the company over a given financial period.  Second is the preference share, which provides a fixed return in preference (i.e. paid before) ordinary share dividends, although the rate of return provided is naturally much less to reflect the lower risk involved in the investment. 

A share comes primarily with the rights to enjoy a portion of company profits in the form of a dividend (usually declared on nominal share value) as well as the right to vote in company meetings.  Of course, most investors don’t avail themselves of these rights and merely approach investing as a short term endeavour.  Nevertheless the rights for shareholders remain, as part of ensuring effective corporate governance and promoting the interests of the particular company in question.