A share of a company is a unit of ownership in a corporation, and if you own one, you own a slice of that business along with everyone else who holds shares. Own 10,000 shares of a company that has one million shares outstanding, and you hold a one-percent stake in it: one percent of the profits it distributes, one percent of the vote on major decisions, and one percent of whatever’s left if it’s ever wound down. Shares exist so that big enterprises can raise money from thousands or millions of investors at once while keeping each person’s risk capped at what they paid.
What You Actually Own When You Buy a Share
Buying a share makes you a part-owner of the corporation. That’s a different position from lending it money by buying its bonds. A bondholder is a creditor who gets paid back with interest on a schedule. A shareholder is an owner who rides the company’s fortunes up or down. If the business grows, your share becomes more valuable. If it struggles, your share loses value. You can’t lose more than what you paid, though, because shareholders in a corporation have limited liability.
Every corporation begins by declaring how many shares it’s allowed to create. That ceiling, the authorized share count, sits in the company’s charter (sometimes called articles of incorporation) filed with the state.1U.S. Securities and Exchange Commission. Going Public Companies rarely sell all of them at once. They keep a reserve for later fundraising, employee compensation, or acquisitions.
Shares that have actually been sold are called issued shares. The ones still in outside investors’ hands are outstanding shares, and that number matters because it’s the denominator in calculations like earnings per share. The gap between issued and outstanding is usually treasury stock, shares the company bought back on the open market. Treasury stock counts as issued but not outstanding, doesn’t factor into earnings-per-share math, and carries no voting rights.2Legal Information Institute. Treasury Stock
The Rights Attached to a Share
Voting
Common shareholders typically get one vote per share on major corporate decisions: electing directors, approving mergers, authorizing stock splits. Almost no one shows up in person. You vote by proxy. Before the annual meeting, the company sends a ballot; you mark it and send it back. Publicly traded companies file a proxy statement with the SEC beforehand disclosing director nominees, executive pay, and any proposals up for a vote.3eCFR. 17 CFR 240.14a-101 – Schedule 14A Information Required in Proxy Statement
Dividends
A dividend is a distribution of company profits to shareholders. The board decides whether to pay one, how much, and when. A profitable company is not required to pay any dividend at all, and many fast-growing ones reinvest every dollar instead. When dividends are paid, preferred shareholders get theirs before common shareholders do.
A Residual Claim on Assets
If a company is liquidated, creditors and bondholders get paid first. Preferred shareholders come next. Common shareholders receive whatever remains, which in bankruptcy is often nothing. That last-in-line position is why common stock is riskier than bonds or preferred shares. It’s also why common stock offers the highest potential return.
Inspection
Shareholders generally have a legal right to inspect a company’s books and records. You can’t just walk in and demand the files. Most states require a written request stating a legitimate purpose, and inspection happens during normal business hours.
Common Stock, Preferred Stock, and Different Voting Classes
Most investors own common stock. It carries voting rights and unlimited upside: if the company’s value doubles, your shares double. It’s also last in line for dividends and liquidation proceeds, so it’s the most exposed if things go badly.
Preferred stock behaves differently. It typically pays a fixed dividend, closer in feel to bond interest, and those preferred dividends must be paid before any common dividend. Many preferred shares are cumulative: if the company skips a payment, the missed dividends pile up and have to be made whole before common shareholders see anything. In exchange for that income priority, preferred shareholders usually give up voting rights and share less in the company’s growth.
Some preferred stock is convertible, meaning the holder can swap each preferred share for a set number of common shares. The conversion ratio is fixed when the stock is issued. Convertible preferred appeals to investors who want the safety of a fixed dividend but also want to participate if the common stock climbs.
Not all common shares are equal, either. Some companies issue multiple classes with different voting power. A common arrangement gives Class B shares ten votes each while Class A shares get one. Founders and insiders hold the high-vote shares and keep control of corporate decisions even while owning a minority of the equity. Alphabet, Meta, and Berkshire Hathaway all use structures like this. Snap went further at its IPO, selling shares with zero voting rights to the public. These arrangements are controversial because they let a small group override the broader shareholder base.
How Shares Are Created, Issued, and Diluted
An initial public offering is how a private company becomes publicly traded. It hires investment banks as underwriters to help price and place the shares. Before any shares change hands, the company files a registration statement (Form S-1) with the SEC covering audited financials, risk factors, planned use of proceeds, and business operations.1U.S. Securities and Exchange Commission. Going Public The SEC has to declare the filing effective before shares can be sold to the public.
The proceeds from the IPO go to the company. After that, the shares trade on secondary markets like the New York Stock Exchange or Nasdaq, and the company gets nothing from those trades. Investors are just buying from and selling to each other at whatever price the market sets.
Companies can issue more shares later through follow-on offerings to raise more capital. When they do, existing shareholders’ ownership percentage shrinks. If a company has 100 million shares outstanding and issues 20 million more, your one-percent stake drops to roughly 0.83 percent. Earnings per share also falls mechanically because the same total profit is spread across more shares. This is dilution, and it’s one of the more important dynamics for a shareholder to watch.
Some corporate charters include preemptive rights, which give existing shareholders the first opportunity to buy newly issued shares in proportion to what they already own, so they can hold their percentage steady. Most state laws no longer grant preemptive rights automatically; they apply only when the charter specifically includes them.4Legal Information Institute. Preemptive Right
Stock Splits
A stock split increases the number of shares you own while proportionally lowering the price of each. Hold 100 shares at $200 and a 2-for-1 split leaves you with 200 shares at $100. Your total investment value hasn’t changed. Companies usually split when the share price has climbed high enough that it might discourage smaller retail buyers. A reverse split does the opposite, cutting the share count and raising the price per share, sometimes to keep a stock above an exchange’s minimum listing price. Splits don’t change what the company is worth. They just re-slice the ownership.
How to Buy Shares
To buy publicly traded shares, you need a brokerage account. Opening one requires personal information, your Social Security number for tax reporting and identity verification, and answers about your financial situation and investment experience.5FINRA. Brokerage Accounts You’ll choose between a cash account, where you pay in full for each purchase, and a margin account, which lets you borrow from the brokerage to fund part of a trade. Margin amplifies both gains and losses, so it carries real risk for anyone new to investing.
Most major brokerages now offer commission-free trades and fractional shares. Fractional shares let you invest a specific dollar amount instead of buying whole shares. If a single share costs $3,000 and you have $300, you can buy one-tenth of a share and receive proportional dividends on that fraction. Voting rights on fractional shares are inconsistent. Some brokerages pass proxy votes through on fractional holdings and some don’t, so check before you assume you’ll have a say.6FINRA. Investing in Fractional Shares
A dividend reinvestment plan (DRIP) automatically uses your dividend payments to buy more shares of the same stock, usually commission-free. Over time it compounds your holdings with no action on your part after setup. One thing people miss: even though no cash hits your bank account, reinvested dividends are still taxable income in the year they’re paid.
How Shares Are Valued
Book Value vs. Market Value
Book value per share is an accounting figure: total assets minus total liabilities, divided by shares outstanding. It’s what each share would theoretically be worth if the company sold everything and paid off its debts at balance-sheet values. Market value is what investors are actually paying on the stock exchange. The two are almost never the same, and the gap shows how much the market is paying for things a balance sheet doesn’t capture, like brand, growth expectations, and competitive position.
The price-to-book ratio compares market price to book value. A ratio below 1.0 means shares trade for less than the company’s accounting value, which could point to a bargain or to problems the market sees coming. Technology companies routinely carry high price-to-book ratios because much of their value sits in intellectual property and expected growth. Financial institutions trade closer to book value because their assets are mostly financial instruments with clear prices.
The Price-to-Earnings Ratio
The price-to-earnings ratio divides the current share price by earnings per share. A P/E of 20 means investors are paying $20 for every $1 of current annual earnings. Higher ratios usually mean the market expects faster earnings growth. Lower ratios can mean a mature business or one investors are skeptical about. Comparisons work best within the same industry, because growth expectations and capital structures differ widely across sectors.
Market Capitalization
Market capitalization is share price multiplied by outstanding shares, and it’s how investors sort companies by size. No official body sets the cutoffs, but a common convention runs:
- Mega-cap: $200 billion and above
- Large-cap: $10 billion to $200 billion
- Mid-cap: $2 billion to $10 billion
- Small-cap: $250 million to $2 billion
- Micro-cap: below $250 million
These thresholds drift up over time as markets grow. Larger companies tend to be more stable and easier to trade. Smaller ones are more volatile and can produce sharper gains or losses.
How Owning Shares Is Taxed
Capital Gains
When you sell shares for more than you paid, the profit is a capital gain. Held for one year or less, the gain is short-term and taxed at your ordinary income rate (10% to 37% for 2026).7Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Held for more than a year, the gain is long-term and taxed at 0%, 15%, or 20% depending on taxable income. For 2026, single filers with taxable income up to $49,450 pay 0% on long-term gains, and the 20% rate starts above $545,500.
Higher earners face an additional 3.8% net investment income tax on top of those rates. It applies to single filers with modified adjusted gross income above $200,000 and joint filers above $250,000. Those thresholds aren’t adjusted for inflation, so more taxpayers cross them each year.8Congress.gov. The 3.8% Net Investment Income Tax – Overview, Data, and Policy
Dividends
Not all dividends are taxed the same way. Qualified dividends, which come from most U.S. corporations, get the same favorable rates as long-term capital gains. To qualify, you have to hold the stock for more than 60 days during a 121-day window that begins 60 days before the ex-dividend date. Miss that holding period and the dividend is taxed as ordinary income at your regular rate.
The Wash Sale Rule
If you sell shares at a loss, you can normally use that loss to offset gains and reduce your tax bill. But if you buy the same or a substantially identical stock within 30 days before or after the sale, the IRS disallows the loss. The disallowed amount is added to the cost basis of the replacement shares, deferring the tax benefit until you eventually sell those.9Internal Revenue Service. Publication 550 – Investment Income and Expenses It catches more people than you’d expect, especially ones who sell at a loss in December and buy back in early January.
When Shares Come From Your Employer
Many companies pay part of an employee’s compensation in shares. The two most common forms behave very differently at tax time.
Restricted stock units (RSUs) are a promise to give you shares after a vesting period, often three to four years. When RSUs vest, the fair market value of the shares is treated as ordinary income and shows up on your W-2, like a paycheck.10Internal Revenue Service. U.S. Taxation of Stock-Based Compensation Any gain after vesting is a capital gain when you sell, long-term if you hold the shares more than a year past the vesting date.
Incentive stock options (ISOs) let you buy company stock at a set exercise price. You generally owe no regular income tax when you receive or exercise ISOs, but exercising can trigger the alternative minimum tax in the year of exercise. When you sell the shares, the profit is taxed as a capital gain if you meet specific holding requirements. Sell too soon and the gain is reclassified as ordinary income.11Internal Revenue Service. Topic No. 427 – Stock Options The holding rules here are strict, and the tax difference between qualifying and not qualifying can be large enough that it’s worth understanding before you exercise.