What is a Share or Stock?

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Share, Stock or equity all represent a part ownership in a company. To completely understand what a share is we have to answer two more basic questions :

  1. What is a company?
  2. Why do they need to issue shares?

Kindly go through it and come back.

It all started way back in 1602 when Dutch East India Company was about to make its venture to southeast Asia.

The owners of Dutch East India Company required a very large amount of money to finance their trip which was approximately 6 million Guilders (Guilders used to be currency at that time).

Obviously, the owners were not capable of raising this money all by themselves, so they decided to divide their company into 2000 pieces with each piece worth 3000 Guilders and demand money from the public for each piece.

This piece is what we called share today.

By tearing up the company into pieces and sharing the profit with the public, owners were able to raise such a large sum of money.

The present modern day companies do this all the time. Suppose a company is worth 100 crores rupees and its owners decides to divide the company into 10 lac pieces (or shares) then these 10 lac shares represent 100% of the company.

If you go ahead and buy 1 lac shares, then you own 10% of the company. It’s that simple.

So, again a share is nothing but part ownership in the company

 

 

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